Monzo has announced it will be offering short-term loans to its 2.5 million customers as the digital bank looks to take on incumbents with a range of digital banking services.

The loans service – which has been trialled for nine months with 4,000 customers – will not be looking to compete against the ‘payday loans’ market, offering lower interest rates than those charged by the likes of Wonga, which has previously reached around 1,000 per cent APR.

Those eligible customers will be able to borrow between £200 and £15,000 from the digital bank for up to 60 months, with rates starting from 3.7 per cent on loans between £7,500 and £15,000 and 20.4 per cent on loans up to £7,500.

The fintech bank said it is aiming to “fix problems across the industry”, including a lack of transparency and unclear terms and pricing. The bank will not charge early repayment fees for those customers looking to settle their debt early and repayment dates can be changed to fit customers’ circumstances.

Monzo advised that a customer’s credit worthiness and they amount they can borrow will be assessed by pairing financial data with information from credit agencies.

The announcement comes after the digital bank rolled out overdrafts of up £1,000 to customers in April 2018.

Commenting on the move, Monzo chief executive Tim Blomfield said: “The unfortunate reality is that many lending products on the market catch customers out with hidden fees and jargon and they don’t offer much flexibility.

“That’s why we’ve worked hard to build a fair and transparent loan offering that gives customers control – this includes letting them decide when they make repayments and not penalising them for paying off their loan early.”

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