Monzo adds ClearScore tool for automated debt consolidation
The UK digital bank says the service can identify and repay existing borrowing directly with lenders, with representative APRs of 10.2% or 21.8%.
By Rafael Ortiz · Fintech Correspondent
· 2 min read
Monzo has introduced a debt consolidation service with ClearScore that the UK digital bank says will automatically identify and repay customers’ existing borrowing directly with lenders. The offer is available to UK residents aged over 18 who hold a Monzo current account, with representative APRs of 10.2% for loans above £10,000 and up to £35,000, and 21.8% for loans up to £10,000.
The service uses ClearScore’s Clearer technology, according to Monzo. The bank said the system is intended to reduce the manual work borrowers face when they use a new loan to pay off existing credit balances.
Debt consolidation typically involves taking a single new loan and using it to clear other borrowing. In practice, Monzo general manager for borrowing Luke Enock said in a LinkedIn post, customers often have to contact lenders themselves and arrange settlement of outstanding balances.
That process can affect the way a loan application is assessed. Enock said that where existing borrowing is not repaid automatically, lenders may assess affordability on the basis that those balances will continue to exist. Monzo’s model is designed to send settlement payments to lenders, rather than leaving the borrower to complete that step after receiving funds.
How the arrangement changes the process
Under the new arrangement, Monzo says ClearScore’s technology will find the customer’s existing borrowing and enable repayment to be made directly to the relevant lenders. The bank describes the service as a way to give customers more certainty that the loan proceeds are being used to reduce debt already owed.
Enock said in the LinkedIn post that debt consolidation can add administration at a point when people need the process to feel simpler. He described Monzo’s service as a UK bank first, saying it means customers face less administration and gain confidence that the loan is paying down existing borrowing.
The launch adds a process layer to Monzo’s consumer lending product rather than changing the basic economics of a consolidation loan. Borrowers still take on a new loan, and the representative APR varies by loan size, according to the figures disclosed by Monzo.
Monzo has positioned the feature within retail banking and consumer finance, where lenders are looking to reduce friction in credit applications while preserving affordability checks. The bank did not disclose expected uptake, lending volumes or any financial terms of its arrangement with ClearScore.
This story draws on original reporting from Finextra Research.
