Borrowing shouldn’t be complicated

At Starling, we like to think we’re everything you need from a bank account – and none of the stuff you don’t. We try to unearth the parts of banking that seem antiquated or redundant, and then figure out how to replace them with products that serve the consumer better and make more sense in the context of a digitally dependant age.

And it’s that straightforward, strip-back-the-fluff spirit that’s informed the build of our own personal loan. To figure out the shape it would take, we investigated how loans have traditionally been offered in the past and why they didn’t really give anyone except the banks themselves a fair deal – and that helped us to define exactly what we didn’t want.

Why we’re offering a loan

People manage and need money in different ways, and Starling exists because we decided to provide a smart and safe space for people to manage their money. We view what we’ve built as a support system that helps our customers forge a path to financial freedom, whatever that might personally look like for them.

So that means crafting a banking experience that’s wholly realised and full-service in what it offers. Not everyone needs – or wants – a loan, just as some people prefer not to use an overdraft or build up their savings in Goals. But for others, an official loan imparts a sense of discipline and structure to the idea of borrowing money, compared to an overdraft, which has fewer defined end points and so for some people, can feel a little more arbitrary or haphazard.

As long as there’s a demand for structured lending – which both our community and wider customer base assure us there is – we knew that it was something we needed to add to Starling’s lineup.

Spot the difference

Naturally the essential concept of the loan remains more or less the same. It’s still fundamentally a structured financial product designed to support people when they want or need to buy something that’s a bit more expensive; one that’s paid back over a set period and is different to an overdraft, which is more of a cash flow management tool built for short term borrowing.

But that’s where the comparisons diverge. For starters, high street banks have usually always offered loans as a separate facility with a distinct product line, whereas ours is fully integrated into the app that you’re already using every day. You’d generally have to undergo a full credit assessment, and pay a hefty setup fee which covers, ostensibly, the costs of processing the application.

And setup costs are usually just the start. There can also be all sorts of extra fees for exiting the loan and paying it off early, which to a lot of people just feels like being unjustly punished for good behaviour. So we decided to build a loan that’s completely free of unnecessary fees; the only thing we charge is interest and we’ll never charge you an exit or setup fee, or a fee for paying your loan off early. Banks have been getting away with those sneaky extras for a long time, and we want to lead the charge towards something fairer.

Taking it easy

The thing that seems to bother people most about loans, though, is the application process. Arduous, administrative and time-consuming, it can involve squeezing a lengthy bank visit into an already busy schedule, miles of paperwork and watching a stranger comb through every detail of your private credit history, in person. All that, plus the ever-looming threat of a rejection in a situation that’s probably already charged with anxiety, thanks to life suddenly demanding a lot more money than you’ve got.

All in all: a bit of a nightmare – so we decided that our application process would feel completely different. We wanted to create an experience that felt as smooth, simple and hassle-free as the rest of the Starling journey; an easy, seamless process that’s completed entirely in-app, takes no more than a few minutes and doesn’t make unnecessary demands on already busy lives.

To apply, all you’ll have to do is answer a few questions in app, and you’ll find out if you qualify upfront rather than having to wait until you’ve actually fully applied, which is a nice way of removing the sense of uncertainty that seems to have bothered people in the past. Plus it’s flexible too; if you’ve already bought something, you can retroactively spread the cost of it over a few months, or just stick with applying in advance if you prefer.

Showing interest

At the heart of what we’ve built is a desire to offer something that felt like it was actually geared towards customers rather than just an exercise in profiteering. So while we obviously do still charge interest, it’s at what we think is a fair rate of around 11.5%.

Since we released Loans, some of our customers have told us that they’ve found cheaper rates elsewhere. And we can’t deny that. But what we’d like to make clear is that when you see those very low rates, it’s usually a very best case scenario, and most of the time what you’ll actually get won’t look anything like that.

We’re much more transparent about what we offer. We don’t skew our figures to entice more customers or use wildly low rates as a ‘hook’, and whilst we can’t justify unsustainable rates like 2%, your rate should always settle at around 11.5% so you’ll know exactly what you’re getting from the very start of your application and you’ll only pay interest on a daily basis for what you actually use.

Control and visibility are a big part of it too. We want you to be able to know exactly what’s going on with your money, as quickly as possible, so we’ve made sure that everything’s right there in your app at a glance, from how many payments you’ve got left to when they’ll be going out and how much they’ll be for.

Your loan and your overdraft

At the moment, our loans and overdrafts are connected, which basically means you can borrow as much as you have left in your available overdraft. So if you have, say, £2000 left to spend out of a £4000 overdraft, you can turn anything up to £2000 into a loan, then we’ll reduce your overdraft by whatever you’ve borrowed then bump it up again when the loan is repaid.

Our personal loan can actually work out better for you; it has a lower interest rate than an overdraft so you should end up paying less for whatever you borrow.

The future

We think we’ve built something quite different to most other loans products on the market – but this is just the beginning. In the future, we’re hoping to broaden our range to support separate personal loans too, which would make the product far more inclusive and mean that people can apply for a Starling loan even if they don’t have a Starling personal account. Stay tuned.