Monzo have recently introduced flex, letting people buy-now-pay-later directly from their account.
But is this a smart financial decision – and does it beat other flexible payment options such as Klarna?
Monzo flex operates as a virtual credit card which can be used to split the cost of payments that are £30+ over 3, 6 or 12 months. The three-month option is interest free, with the 6 or 12 month plans come with additional interest payments.
So far so Klarna, but there are some key differences. First of all, Flex can all be managed directly from Monzo’s ridiculously well-designed app, making it easy to stay on top of your payments. It also gives you the option of going back over your recent purchases and choosing to ‘flex’ them after the fact. This puts the money back into your bank account, and sets up a payment plan on your behalf.
When should I use it?
There’s nothing inherently bad about buying on credit, but you have to do it smartly. When choosing the three-month option, you don’t need to pay any interest, so this can be a smart way of spreading a bigger purchase across several paycheques. Typically, when deciding to buy something on credit you should make sure that it’s something you definitely need, and something you can afford to fit into your budget.
For instance, if you need to buy a new appliance worth £150 and you have £50 or more to allocate to household expenses each month, then ‘flexing’ it over the three months could work well. On the other hand, choosing to upgrade your TV when you’re not certain you can afford wouldn’t be a good use of buy-now-pay-later.
Is it better than the alternatives?
In essence, Monzo Flex isn’t that different from other similar schemes that you might see at online checkouts. Although its integration with the Monzo app means there are a few more bells and whistles, it’s still essentially the same product.
One key thing to note is the fact that missed payments may be reported to the credit agencies, which means they can have a negative impact on your ability to get other types of loan, credit or even mortgages in the future. That’s one of the reasons that it’s so important to only spend what you can afford, and to stay on top of payments.
If you already have a Monzo account then using flex to buy-now-pay-later over short time periods will probably be the most convenient approach. However if you’re looking at using the longer, interest-paying options, then their may be cheaper ways to borrow the money. For instance, applying for a credit card that offers a 0% promotion on purchases would allow you to spread the cost in the same way (or potentially for longer) without having to pay any interest. In this case it would be a trade off of convenience against fees.
It is nice to see that Monzo are continuing to innovate their offer, and moving with current consumer trends. Consistently rated one of the top banks for customer service, and providing a great app-first experience for the digital age, there are lots of good reasons to consider opening an account. So while it’s not necessarily worth switching specifically for Monzo Flex, it helps add to a great banking offer.