The overdraft works the same as before for most, but some people will have an optional repayment plan
Monzo has sent an update out to anyone with an overdraft to explain some new rules for its overdraft agreement. There’s no immediate impact for anyone, but they highlight changes planned for the overdraft going forward, and extra help available for those struggling to repay their overdraft.
Here’s what’s changed and how it could impact you if you’ve got a Monzo overdraft.
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How does the Monzo overdraft work?
On an individual account, you can get an agreed overdraft of up to £2,000 with an APR of 19%, 29% or 39%, depending on your credit score.
You can manage the overdraft straight from the app. It lets you see in pounds the amount that the overdraft will cost you. Monzo is pretty upfront with what you’ll pay to use your overdraft with a calculator on its website.
What’s changing with the overdraft?
In the future, there will be the option to separate your overdraft from your current account and set up a repayment plan for it.
This is for those who are struggling to repay their Monzo overdraft. This allows it to work more like a traditional loan and repay it over a set period of time instead of repeatedly dipping into it or pushing it higher each month.
Monzo says that this will be an option you can choose, but it might do it automatically for you if it thinks that will help you manage your overdraft, although you’ll get a warning of this beforehand.
If your overdraft is separated, then when you receive money into your account, it’ll go into your main current account, not the separated overdraft. This allows you to pay it back over time and still use your current account to manage your finances.
Can you still use your overdraft?
No. During this time, you wouldn’t have further access to your overdraft until Monzo gives you access to it again. You’ll be able to manage the arranged overdraft in the “Repayment” section of the app.
Interest
Interest is still charged on the separated balance at the same rate as it was charged beforehand.
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Repayments
The amount that you’ll repay each month is agreed at the time that your overdraft is split from your current account. You’ll make repayments into the account each month, similar to if it were a loan.
Unlike if it were still an overdraft, you can’t then go back into it — the overdraft will reduce by the amount you’ve paid off, plus interest, until it’s repaid in full.
Can Monzo take money out of your account to repay your overdraft?
Yes. This is the key thing you need to be aware of — if you owe Monzo money, it’s well within its rights to take money out of your current account or savings pots with them if you owe them a debt.
But it’s important to know that Monzo doesn’t intend to do this. If you have your overdraft split from your current account and agree to a repayment plan, then keeping this up and making the payments would generally prevent this from happening.
If you disagree with the changes
If you don’t want your overdraft to be split from your current account, you can remove your overdraft from your account in the app. If you’re using it at all, you’ll have to pay back the overdraft beforehand.
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Need help managing your overdraft?
If you need help with repayments, you can contact Monzo directly. This could result in one of these plans being put in place.
There are also several not-for-profit debt charities you can reach out to for help, these include:
