Banking Without Borders
00:06:59 · Jonny Pease
[00:06:59] S0: Let's have a look at the wider loan market now, Jan. We've looked at 22 providers in total across our research. Well, I think I made it pretty clear in the introduction that we're not going to be recommending personal loans, but we thought for context, we thought it would be important just to have a look what other providers are offering. Nationwide and Monzo are offering loans of 5.9%, which is a percentage point lower than Revolution on a loan of 7.5 to 25,000 pounds. But they also have max APR. So nationwide Jan, right, have a maximum APR of 29.9%. Potentially, 49% of nationwide's customers could still pay 29.9% APR Jan on a personal loan. It's really quite astonishing. But yeah, if you if you look across these 22 providers, for those that are watching, we'll put a bit more nuance on the screen. You know, it it goes from as low as 5.9%, you know, through to like uh NatWest are charging as low as 7.9%, uh Monzo 10%, Zopa, who are Jan, always emailing me saying I'm eligible for a loan. They're always, I mean, I was at one point getting like a cadence, I think, of emails every two weeks saying, hey, you can get a personal loan, hey, you can get a personal loan. Now the email I think says 7.9% for me because they're able to look at the data inside my account and make that recommendation. Revolut will do the same. And Jan, tried to tell me why this is, okay. John Lewis Money, they offer personal loans to their customers through Zopa. They actually have an APR, advertised APR of 10%, which is less than half of Zopa. That is very confusing to me.
00:08:33 · Jan Watermann, Jonny Pease
[00:08:33] S1: It's fascinating, Jonny. The only way I could potentially explain this is by assuming that they're a little bit more restrictive with the people that they accept for a loan. Yes. Right? So they have a higher credit worthiness on average than the ones that Zopa accepts. Maybe they're a little bit more lenient, you know, they also accept people with lower credit worthiness and therefore the interest rates are higher. But it's yeah, it's shocking. Like these double-digit amounts, you know, it's it's wow, it's fascinating. [00:09:00] S0: I wonder if John Lewis are looking to for they're hoping people will borrow money from them to purchase things from their shop, their store. They're like an online e-commerce giant here in the UK. Yeah, you could, you know, buy things from them for your bathroom, bedroom, like home improvement stuff. Maybe that's their angle here. They're more interested, not in necessarily the interest that they can earn from the debt, but the margin that they might make might make on the products that you could then be able to purchase through that loan. Yeah, that could very well be. [00:09:29] S1: So maybe they're not intending to make a profit with the loan. Is that what you're saying? But instead they're just, you know, hoping that people get money in order to be able to spend it in their online shop.
00:09:29 · Jan Watermann, Jonny Pease
[00:09:29] S1: So maybe they're not intending to make a profit with the loan. Is that what you're saying? But instead they're just, you know, hoping that people get money in order to be able to spend it in their online shop. [00:09:39] S0: You know what doesn't make sense to me though? The rate that you will receive would typically improve the more you borrow. If you borrow £10,000 from Monzo, you could have to pay back roughly in interest, because this might change depending on who you are, around £3,541 pounds. That's £10,000, Jan. What happens if you borrow £10,100 across the same period? Well, it drastically changes. It drops to 10%, and the interest that you have to pay off goes down to like 1,500 quid. So you're talking about this incredible reduction in interest just for borrowing an extra 100 pounds. Now that is a very visceral example of what's going on here, but I do find it really quite terrifying. If I'm desperate to l to borrow, Jan and I I need the money and I see that, you know, I could potentially save on interest by borrowing more, I'm just gonna push to get myself further in debt. But then what if you can't pay it off? You end up, you could technically get yourself in a worse place because of that incentive.
00:09:39 · Jonny Pease, Jan Watermann
[00:09:39] S0: You know what doesn't make sense to me though? The rate that you will receive would typically improve the more you borrow. If you borrow £10,000 from Monzo, you could have to pay back roughly in interest, because this might change depending on who you are, around £3,541 pounds. That's £10,000, Jan. What happens if you borrow £10,100 across the same period? Well, it drastically changes. It drops to 10%, and the interest that you have to pay off goes down to like 1,500 quid. So you're talking about this incredible reduction in interest just for borrowing an extra 100 pounds. Now that is a very visceral example of what's going on here, but I do find it really quite terrifying. If I'm desperate to l to borrow, Jan and I I need the money and I see that, you know, I could potentially save on interest by borrowing more, I'm just gonna push to get myself further in debt. But then what if you can't pay it off? You end up, you could technically get yourself in a worse place because of that incentive. [00:10:41] S1: Yeah, Jonny, that system is messed up. This system is totally messed up, at least from a consumer perspective. I understand why banks do that. I assume there's administrative effort involved with giving a loan to someone. Therefore, it's in their interest to give you as much money as possible because they'll be receiving more interest with it. But I think it's quite drastic, right? Literally a hundred pounds can make a difference of 13%, right? There's yeah, there's no way to justify that, at least in at least in my same with nationwide.
00:10:41 · Jan Watermann, Jonny Pease
[00:10:41] S1: Yeah, Jonny, that system is messed up. This system is totally messed up, at least from a consumer perspective. I understand why banks do that. I assume there's administrative effort involved with giving a loan to someone. Therefore, it's in their interest to give you as much money as possible because they'll be receiving more interest with it. But I think it's quite drastic, right? Literally a hundred pounds can make a difference of 13%, right? There's yeah, there's no way to justify that, at least in at least in my same with nationwide. [00:11:14] S0: Okay. It's like with nationwide, if you borrow just an extra one pound, okay, if you go from 7,499 pounds over five years, we should say we've used their loan calculators to work this one out. So this is directly, this is primary sourced. If you borrow £7,499 with nationwide across five years, you get a an APR of 6.9%. Okay, if you borrow £7,500 across the same term length, one pound more, you get £1.9%. [00:11:41] S1: You have to read the fine print here. How devastating it it must feel to take out a loan, right? And then figure out that if you would have taken taken out one pound more, you would have literally had to pay one percent less in interest. It's uh I mean that's that's not good at all.
00:11:41 · Jan Watermann, Jonny Pease
[00:11:41] S1: You have to read the fine print here. How devastating it it must feel to take out a loan, right? And then figure out that if you would have taken taken out one pound more, you would have literally had to pay one percent less in interest. It's uh I mean that's that's not good at all. [00:11:57] S0: And we know just how emotionally charged money can be for so many people, and being in debt, it's it's even worse. You know, it's it's it's such a horrifying place to be. And if you imagine you are pushed to your extent, your limit, and what you can owe and pay back, and you scrimp and save on your life, and to the point where maybe you're not eating as much to save money, and then you realise, oh, I could have actually ended up paying back less just by borrowing another pound. Like the whole system is deeply flawed. It's like the idea of payment holidays, Jan. [00:12:28] S1: Payment holidays.