I recently got an email from Monzo (as a customer, rather than a journalist) with the subject ‘Rory used his Monzo loan to make his dream wedding a reality’.

I’d normally just hit delete, but my gut told me that if I opened it I’d be angry. I was right.

Where to begin? We’ll come back to the purpose of the loan and start with the email’s first line, a quote from a customer (the aforementioned Rory) saying, ‘The process with Monzo was the easiest by far that I’ve had with any bank’.

Putting aside that this seems to suggest Rory has applied for loans at lots of banks (which isn’t a good practice to normalise), let’s examine the use of ‘easiest’.

Should borrowing money be easy? I’m all for using technology and clear language to make things simple to understand, but not as a lazy alternative to saving up or going without things you can’t afford.

Of course, there are degrees of this. The ease of borrowing via services like Buy Now, Pay Later (something Monzo is also pushing hard right now) or overdrafts can often feel like you’re not borrowing money when of course you are.

Fortunately, that’s not what’s happening here — it’s clear you’re applying for a loan that needs to be paid back. What Monzo is really selling here is the speed of getting a loan, with the cash in your account from just a few clicks.

I tried out the application and there’s very little friction in the process. And if I’d carried on the money would have been in my account in minutes. It was too easy.

A slower application or longer wait for the money could make you question whether you actually need it.

Now, back to Rory and how he used the loan. We know from the email subject that it was for his wedding, but now we get more detail. The money went to ‘the beautiful flowers and the archway’.

At a time when millions are struggling to find money for everyday essentials it feels misjudged to be pushing debt as the solution for luxuries, and a flower arch absolutely is a luxury.

The quote from Rory goes on: ‘It allowed us to look back on that day and say that was everything we ever wanted from a wedding.’ OK Rory, that’s lovely. But how much did it actually set you back?

I asked Monzo if it would share more details of Rory’s loan — how much was borrowed, what the rate was and how long it was for — but they couldn’t share it with me, or put me in touch with Rory himself.

The email does list the rates for their loans. The representative rates (what 51% of customers will get) are 10.5% for loans between £10,000 and £25,000, or 24.1% for loans up to £10,000.

So let’s assume he borrowed £1,000 for the flowers and arch (that’s a conservative guess — arrangements aren’t cheap), and that it was all he borrowed. If he got the APR of 24.1% and wanted to clear the debt over 12 months, he’d repay a total of £1,135. An extra £135. If it was over two years the interest would double to £270.

These rates felt steep, and a quick look on some comparison tables backed up my instinct.

Yes, it’s dependent on everyone’s own credit history, but lower rates are available, for example 9.8% on a loan of £1,000 and 2.7% on borrowing of £15,000. And it’s possible to get interest-free borrowing with 0% purchase credit cards, which would have been cheaper yet.

Of course, Monzo isn’t alone in pushing rates that aren’t the cheapest, or from suggesting that it’s normal to borrow money.

In fact, the same email from many of the high street banks would probably have been met with a shrug from me.

But Monzo is a bank built on making it easier for customers to save and to budget. And now it’s effectively saying don’t worry about any of that, just get a loan.

The ‘about’ page on Monzo’s website proudly says ‘we’re focused on solving problems rather than selling financial products’, but this feels firmly like a traditional bank trying to make money.

And emails like the one I received might just be doing that at the expense of a loyal customer base.

Andy Webb is an award-winning blogger and podcaster from Be Clever With Your Cash. Follow Andy on Twitter, YouTube and Instagram via @andyclevercash

If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.

Source: Read Full Article