Monzo Flex: A better Buy Now Pay Later product?

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This week, Monzo launched its new Buy Now Pay Later (BNPL) product, Monzo Flex. It’s an interesting proposition, not least because Monzo is the first bank to do so.

For one, Monzo Flex seems to be unique in combining features from a few different credit products.

And then there’s the fact that it can be used as a way to build up your credit score and help you borrow responsibly – bear in mind though that it can also negatively affect your credit score if you miss any payments.

Here’s what you need to know.

How Monzo Flex works

Monzo Flex is all about flexibility so you can use it in a few different ways, but each transaction must be at least £30.

If you decide to split the payment into three instalments, like PayPal’s version, it’s completely interest free.

However, you also have the choice of paying the first instalment immediately, or within 14 days, depending on your preference (or how far you are from payday).

You can split the payments into six or 12 instalments as well, but this will incur an interest rate of 19% APR, so only do this if you need to and if you don’t have access to cheaper forms of borrowing.

And just because you’ve decided on three or 12 instalments at the beginning, it doesn’t mean you have to stick to it.

Instead, Monzo will let you adjust the number of instalments any time you want – you just have to pay more interest if you want to increase the number of instalments – and you can repay the full amount early without penalty.

It’s also possible to retroactively apply Flex to a transaction from the last 14 days – Monzo will refund the money back into your account and debit the first instalment straight away.

You only need to apply for Flex once and, if approved, you’ll be able to have as many Flex “arrangements” as you want as long as your total debt is under the credit limit offered to you (see below).

How to apply for Monzo Flex

At the moment, Monzo Flex is still being rolled out, so you can only get it if you’re invited.

If you’re new to Monzo, you can also tell them that you’re interested in Flex via the app to potentially be among the first to try it.

Initially, though, it seems Monzo is only inviting those it has done a soft credit check on and can pre-approve.

This soft check doesn’t affect your credit score – but once Monzo offers you Flex, and you accept, the bank will then run a hard check with one of the three credit reference agencies (Experian*, Equifax or TransUnion).

Depending on what your credit history is like, Monzo will then reject you or give you a credit limit of up to £3,000.

How Monzo Flex will affect your credit score

Unlike some BNPL providers, Monzo has committed to responsible lending by checking affordability via credit reference agencies and setting your credit limit accordingly.

But because they run a hard check, it leaves a note on your account that other lenders can see. And if you apply for too many credit products in a short space of time, it could be seen as a sign of financial distress, which means fewer if any lenders will offer you credit in future.

How you use Flex will be reported to credit reference agencies, too.

If you consistently pay off your outstanding debt, even if you’re on the interest free three-instalment plan, this will be seen in the same way as if you were using a credit card responsibly.

In the long run, it means other lenders will see you as a responsible borrower and are more likely to lend to you or offer you better rates.

If, however, you miss a payment, your credit score will be negatively affected so this is worth bearing in mind.

What happens if you miss a payment?

Flex payments are automatically deducted from your Monzo account, and you’ll get an alert before that happens.

Obviously if you don’t have any money in your account, or have an overdraft, you’ll miss the payment.

The one benefit that Monzo Flex has above other forms of borrowing is that there are no late fees to pay, although the feature will be frozen until you’ve caught up with your payments.

Monzo says it will give you another seven days to pay up when you miss a payment. After that, it will look at splitting your debt into more instalments so your monthly repayments are smaller.

You will have to pay more interest in the long run if this happens, but the individual payments might be more manageable.

And if you continue to miss payments, Monzo will report you to credit reference agencies, which will negatively affect your credit score.

Other things to consider…

Unlike using credit cards, Monzo Flex doesn’t offer any Section 75 protection for purchases at the moment.

However, the company is planning to launch a virtual Flex card that will offer it in the future.

Another thing to note is that if you have multiple Flex arrangements on the go, you might have payments coming out of your account on different days, which can be hard to keep track of.

Monzo says it will alert you when the money is about to be debited but personally I’m not a fan of this multiple arrangements approach as I think it’s all too easy to make mistakes and you might get confused about how much is going out when.

You might be able to mitigate some of those issues by making sure all the instalments are going out on the same day so they’re easier to keep track of, or only use Flex on bit ticket items rather than anything and everything over £30.