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Fintech startup Monzo is exploring the idea of offering high-interest loans for people with poor credit.
CEO and co-founder Tom Blomfield told the Telegraph that the company was tentatively looking at lending to people who are not otherwise catered to.
“It’s an area that no-one wants to go and touch,” he said. “The options available to people in that segment are often very poor.”
Consumers with poor credit files are often attracted to payday lenders with extortionate rates of interest as it is difficult to secure traditional loans from banks. Fallen payday lender Wonga famously charged up to 5,000% APR on its loans before it went into administration this August.
Blomfield sympathised with the ‘Wonga segment’, saying that the lender was one of the most palatable options for people in this position. “If you’ve got a doorstep lender who literally is going to come round with a baseball bat, actually Wonga looks like a pretty attractive alternative.”
While the business is not currently developing such a product, the idea has been discussed with the rest of the board. Opinions are mixed, with Blomfield describing it as a “tricky subject”.
Traditional payday lenders have already diversified into other products with lenders such as QuickQuid and MYJAR offering flexible instalment loans repaid over 3,6 or 12 months. This gives the customer more breathing time to repay their loan and those that repay early may be eligible for a rebate of interest.
Monzo currently charges 50p per day for arranged overdrafts, with a £20 buffer zone for accidental overspending. The bank recently began rolling out loans for its existing customers.
Qualifying customers can borrow between £200 and £1000 a month, repayable over 3 months to a year. Repayments are automatically taken out of the customer’s balance, with interest charged at a representative APR of 20.4%.
The business is currently unable to offer loans to between 10 and 20% of its customers because of poor credit history.
Earlier today, Blomfield told the Monzo community:
“Mainstream banks don’t talk about people with poor credit history or problem debt because the press immediately start screaming “Wonga” and “Payday lender”. And so not enough people are working to address it. That makes me incredibly angry and I’m fed up of avoiding the issue because of the risk of negative headlines.
“We are going to work really, really hard to try to help people with poor credit scores and problem debt. We want to be part of the solution, not pretend it’s an issue that doesn’t exist.”
Loan stock photo by file404/Shutterstock
