Monzo launches automated debt consolidation with ClearScore

Monzo has introduced a debt consolidation loan service using ClearScore technology, making it the first UK bank to use ClearScore's automated debt consolidation system.

The service lets Monzo customers combine borrowing into a single loan, while ClearScore's Clearer System settles existing debts directly with the relevant lenders. This removes the need for customers to contact lenders themselves to confirm balances and arrange repayment.

The launch marks a new step for both companies as banks and fintech groups seek to simplify borrowing and debt management for customers with multiple credit commitments. Monzo said the product gives customers a new way to consolidate borrowing into a single loan, while ClearScore said it also changes how lenders assess applicants for consolidation loans.

Under the traditional debt consolidation model, borrowers often receive a loan and must then use the funds to repay other lenders. That can create additional administrative burden when customers may already be under financial strain, and it can also leave lenders unsure whether prior balances will actually be cleared.

Monzo said this has led to three recurring problems in the market: customers must contact lenders, check balances and settle debts on their own; lenders may assess affordability on the basis that existing borrowing remains outstanding; and some consumers worry that a consolidation loan could increase their total borrowing rather than reduce it.

By automating repayment to existing lenders, the new model aims to address those concerns. ClearScore said its system gives lenders guaranteed repayment of existing liabilities, more accurate risk assessment and pricing, lower default risk, and a fully digital customer journey with lower servicing costs.

The product also reflects Monzo's continued push to broaden its lending offer beyond current accounts and everyday banking services. The digital bank said more than 15 million personal and business customers use its services.

ClearScore, best known for its consumer credit score and credit report service, operates in the UK, South Africa, Australia, Canada and New Zealand. In the UK, it works with Equifax to give users regular access to their credit information.

For Monzo, the move forms part of a wider effort to build products through its app that make borrowing easier to understand and manage. Debt consolidation has long been marketed as a way to simplify repayments, but it has also raised concerns that longer repayment periods can increase the total cost of borrowing.

Monzo disclosed representative annual percentage rates for the new lending. Its representative APR for loans of more than £10,000 and up to £35,000 is 10.2%, while loans of up to £10,000 carry a representative rate of 21.8%.

The bank also noted that some existing lenders may charge early repayment fees and that consolidating debt can mean it takes longer to pay off what is owed. It added that the process could cost more in total than a customer is currently paying.

Both companies presented the automated repayment feature as the main difference from standard consolidation products. Rather than relying on the borrower to complete each step after receiving the new loan, the system is designed to direct funds immediately to settle existing debts with participating lenders.

That matters for underwriting as well as customer experience. If a lender can verify that prior liabilities will be repaid directly, it may be able to assess affordability differently than with a conventional consolidation loan, where legacy balances may still appear to remain in place until the borrower takes action.

In comments published alongside the launch, Monzo said the current model often leaves customers carrying too much of the burden.

"Debt consolidation should help people feel more in control. But too often, it means more admin at the exact moment people need things to feel simpler," said Luke Enock of Monzo.

"The way it works today creates three common barriers: customers take on the hassle of contacting lenders, checking balances and settling borrowing themselves; because existing borrowing isn't automatically repaid, lenders need to assess affordability as though those balances will remain, so fewer people are accepted for a consolidation loan; and our research found many people worry a consolidation loan could leave them with more borrowing, not less.

"So we built something different. Monzo is offering customers a new way to bring their borrowing together into a single loan. We'll automatically find and settle a customer's existing borrowing directly with lenders, through ClearScore's Clearer technology.

"For customers, that means less admin and confidence that the loan is being used to pay down what they already owe. Monzo is the first UK bank to offer this kind of automated debt consolidation experience.

"Monzo current account required. UK residents aged 18+ only. Eligibility criteria and terms and conditions apply. Missed payments may negatively affect credit scores. Our representative APR for loans of more than £10,000 and up to £35,000 is 10.2%. For loans up to £10,000, it is 21.8%. Your current lenders might charge a fee for early repayment, and consolidating your debt might mean it takes longer to pay off. It could also cost more in total than you're paying now."

ClearScore also highlighted the product's lending implications.

"We're helping Monzo offer a new type of debt consolidation loan to its customers, one that automatically settles existing borrowing directly with the relevant lenders. Monzo is the first bank to use ClearScore's Clearer automated debt consolidation technology," the company said.

"For lenders, Clearer delivers guaranteed repayment of existing liabilities, more accurate risk assessment and pricing, lower default risk, and fully digital journeys with lower cost to serve," it added.