If It Looks Like a Payday Lender, and Quacks Like a Payday Lender…

On the surface, MOGO and CashMoney are very different. If you go to their respective websites, MOGO is about “getting financially awesome” by offering you “personal loans that can put you in financial control”.

CashMoney is 100% upfront on their site about being a payday loan company where you can get quick cash when you need it at high interest rates, for a short period of time.

But when you look a little closer at the MOGO page, you find that it’s a payday lender, just like CashMoney, registered under the Payday Loans Act of 2008.

On the MOGO site, there is a tiny link underneath the “Sign Me Up” button:

Click on “lender licences” and pick your province to find their licence and legal disclaimers they have to provide when they are charging insanely high interest. Legal, but crazy. At least CashMoney has their licence posted on a page clearly with all of the other legal disclaimers.

Per the Payday Loans Act, lenders can charge $21 per $100 for a short term loan. The loan is typically for 2 weeks, hence the payday name. You can’t rollover a payday loan into another payday loan, but instead, when people get paid, they pay off the $121(or multiples of $121) from their paycheque and then immediately take out another 2-week loan. If someone does that for one year, they are paying $21, 26 times, on $100.

That’s $546 for the year, which is an Annual Percentage Rate (APR) of 546%!

Per the Criminal code of Canada, section 347:

criminal rate means an effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds sixty per cent on the credit advanced under an agreement or arrangement; (taux criminel)

To be a criminal, you have to charge more than 60% interest on a loan. But this doesn’t apply to payday loans, as they have their own act. Lucky them!

MORE THAN JUST PAYDAY LOANS

MOGO doesn’t have to focus on being a payday lender because they have other products: long-term lines of credit and loans. Again, found only in the fine print are their rates:

† MogoLiquid – Installment loans from $5,000 to $35,000, from 5.9% to 45.9% APR, terms 1 – 5 years. O.A.C.
‡ MogoMini – Line of credit 47.71% AIR not including optional fees or services. O.A.C.

Wow – those top rates are pretty close to the criminal rate.

A $35,000 fixed-principal loan at 45.9% paid off over 5 years would cost you $33,000 in interest. Sounds criminal to me.

FIXED-PRINCIPAL LOAN
MOGO uses the fixed-principal method of loan amortization which means you pay the same principal amount bi-weekly for the entire 5 years, and the interest is charged on the remaining balance of the loan.
So you have $35,000 over 5 years = $7,000 per year, over 26 bi-weekly periods = $269.23.
You pay $269.23 every 2 weeks plus whatever the interest is on the remaining balance.
For the first year, you’re paying an average of $450 in interest every two weeks.
That’s $12,000 in interest in the first year.

Ok, but their lowest 5.9% rate isn’t that bad, right? If you need a loan to buy that thing you don’t need? I wonder if anyone actually gets that 5.9% rate?

Maybe I could?

THE APPLICATION

I went through the application process to see what they would offer me and what kind of information I had to give.

Here, I found the only good part about signing up for a MOGO account. You get your Equifax Credit Score for free. Equifax charges $23.95 so that’s a pretty good deal.

It’s only a good deal if you don’t end up accepting any of the MOGO loan offers. Please don’t fall for this tactic. Just take the free credit score and then leave your account alone.

But of course, I had to go through the nightmare of the Equifax security questions. Yes, the ones that got me banned years ago.

The first answer was about a mortgage, which I don’t have, so I answered “none of the above”.
Second question was about a credit card I opened in October 2015. I had to check to see which of my credit cards that was, and luckily for me, Scotiabank was October and Tangerine was November.
Third question was about my telephone account and I’ve been with Rogers for a while so that was easy.

I got through!

I happy to say my Equifax credit score is 768. This is apparently an excellent credit score!

So they should offer me a $35,000 loan at 5.9%, right?

Nope.

I was offered $15,000 at 9.9% over 4 years. Not bad.

If I were to take this (which I would never do) I would pay $3,000 in interest over 4 years.

But that’s still a lot of interest to pay and because the fixed principal method is front-loaded, you pay the majority of your interest in the first 2 years. If you pay it off 2 years early, you only save $700 of the $3,000.

Here’s what I realized, going through this process:

Only the people that really need the money are going to see the insanely high loan rates, or be offered the payday loan option.  This is where MOGO beats CashMoney at their own game. People might apply, maybe just for the free credit score, or to get a prepaid VISA or whatever, and they get an offer for a $3,500 line of credit at 47.71% interest. They get the offer in private. They don’t have to walk into a CashMoney place and show their paycheque and beg for money. It’s all online.

BUT I WANT $15,000 AT 9.9%! I COULD PAY OFF MY 28% CREDIT CARDS AND NOT BE SO STRESSED EVERY MONTH!

This is actually MOGO’s sales pitch. And you are the target.

Maybe you’ll qualify for that, or more. But should you take the offer?

You could, but I worry it’s just another short-term fix for you.

In a future post, I will talk about how the answer to credit problems is usually not more credit. Often a complete overhaul of your lifestyle is needed to get to the root of why you are in such crazy debt in the first place.

Stay tuned for that segment, but until then, stay wise, and be careful with companies like MOGO and CashMoney.

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