People often ask me how I manage my money. It’s not that people are curious, I think they just like to be bored.
Explain how build a budget, saving for retirement, paying off debts and creating an emergency fund is not something exciting. I know this because within minutes of talking about cutting costs to increase savings, people start looking drowsy.
I understand. Seeing the benefits of financial prudence takes time, and people today love instant gratification. Heck, I also love instant gratification – especially when it comes to money.
Canadians love money. Or rather, we like not having a lot of them.
Statistics Canada recently said our debt-to-income ratio reached 165.3% for the first quarter of 2016. As a result, Canuck households owe $ 1.65 in debt for every dollar earned, near an all-time high. I’ll add to it by spending a lot, saving little, and paying only the minimum amount I owe.
But before accepting three pre-approved lines of credit or accepting a standing offer for a higher limit on my credit card from one of the Big Five banks, I want to experience the excitement that the new culture of financial technology (fintech) has to offer by becoming a disruptor and getting into debt with a Canadian online lender.
To get my fintech loan, I started my research not online, but by hanging out at a place called the MogoLounge on Queen Street West in Toronto. A few minutes after resting near a bar of loaded iPads on Mogo.ca loan requests, I was served a bottle of cold water and I marked a condom wrapped in a marketing sleeve that asked, “Get fucked by the banks?”
As being fucked by a bank is a Canadian rite of passage, I was in it. With a fluid social media presence, a three-minute loan application, free credit scores, and cool marketing, Mogo targets borrowing savvy and struggling millennials looking for low-rate loans. interest to pay off their high interest consumer debt.
There is even an educational YouTube series called Adulting101 that teaches adult tips like: 5 Steps To A Rocking Credit Score! “The only thing that says ‘I’m an adult’ more than a financial responsibility is the theft of expensive wine and a plate of cheese,” said an Adulting101 blog post. I would agree except being Gen X with a toddler I would say nothing made me feel more adult than wiping baby vomit off my shoulder.
In short, enough reality. Back to my loan party.
Since I was an adult, I decided to do the adult thing by educating myself on Mogo loans. With their head office in Vancouver, Mogo said they have more than 200,000 members and have granted more than 1.2 million loans since 2007.
Cool kids with great credit scores get MogoLiquid – a term loan of $ 5,000 to $ 35,000 with annual percentage rates of 5.9% to 45.9% (APR). At the lowest rate, you pay around $ 295 per month to borrow five thousand dollars. Then there’s the MogoMini line of credit – it comes with an APR of 47.7%, plus fees. Finally, there is the payday loan product called MogoZip. To borrow one hundred dollars for 14 days, you will pay $ 10.50, which equates to an interest rate of 273.6%.
OK guys, who’s fucking who?
Doing the math, a credit card at 19% or less is much cheaper than a Mogo line of credit at 47%. My plan to reach out to indebted Canadians who are paying off their loans with more loans was heading quickly for the hole.
So I pocketed my free condoms, drank my water bottle, and used my Adulting101 skills to chat with Dave Feller, founder and CEO of Mogo. I wanted to know who gets these loans and what credit score is needed to get the lowest and most impressive rate?
“The main reason consumers come to Mogo today is because they are looking to deleverage their debt at a higher cost,” he said in a telephone interview. “We generally think we can save consumers an average of 25 to 50 percent of what they are currently paying elsewhere.”
“We’re basically saying, ‘Come to Mogo, take three minutes and see if you qualify for a better rate,’” he said. “Obviously, if you don’t qualify for a lower rate, we wouldn’t expect you to take it. In the worst case scenario, you have a free credit score and there is no impact on your credit for doing so. “
But what credit score is needed for each loan? I asked Mr. Feller three times. No dice. Mogo uses an algorithm built from years of data to determine which loan you qualify for and at what rate. If you have a credit score of 700 but have peaked from all sources of credit, you’re unlikely to qualify for the lowest rate, Feller said.
So what is the solution ? I asked Laurie Campbell, CEO of Credit Canada Debt Solutions Inc., what should a borrower with multiple loans do?
“Online lenders have found a niche because many financial institutions are unwilling to provide anything to consumers that they consider high risk,” she said.
“Unless people look at the root causes of their financial hardship and why they have overwhelmed themselves financially, there’s a good chance they’ll get a loan to consolidate that high-interest debt and ‘they then continue to use the credit cards which are now paid in full. “
Ms. Campbell’s plan to tackle debt:
1. Create an accurate debt repayment plan that details a schedule, interest rates and the amount of debt to be repaid. Pick a debt repayment day.
2. Create a budget. “Are you really living on paycheck after paycheck or are you making some very problematic financial decisions that have resulted in debt?” “
3. Track your spending. “Are there areas you can narrow down? “
4. Include family. “A lot of times people try to do this solo and they have a partner to spend. Make sure the whole family is on board,” she said.
5. Ask your financial institution for a rate reduction.
6. Visit your bank or nonprofit credit counseling service to learn about ways to manage your finances with recommended action plans.
“If you pull yourself together and all of these things are in place, then you have an educated mindset for this loan,” Ms. Campbell said.
With my new and exciting fintech-indebted lifestyle canceled out by the reality of a 47.7 percent APR online loan, I decided to become my boring, money-saving self again.
Now you have to know what to do with these condoms.
Kerry K. Taylor is a personal finance and consumer expert, author of 397 Ways to Save Money and the only blogger on Squawkfox.com.