—This story was updated on May 12, 2016 after comments from a Mogo spokesperson clarified that their initial free credit check does not impact credit score. Mogo has since revised the section of their website that was unclear on the matter—
You may already be acquainted with some of the financial tech startups that are challenging the world of Canadian personal finance, like Wealthsimple or Mint. Now there’s a new kid on the block named Mogo that has opened up its first brick-and-mortar store in Toronto. But don’t be fooled by this new storefront: It’s not a real bank, but rather a loan lender marketed towards millennials, offering fast and easy loans on its website. So should you trust this well-dressed outsider? “It’s a cool concept and in line with the robo-advisors that have started to disrupt traditional money managers,” says MoneySense Approved Financial Advisor Jason Health. Here’s four things you should know before using their services.
1. You can get your credit score for free with Mogo
A credit score by a credit rating agency would usually cost you around $24, but comes free with Mogo when you sign up for an account. And you’re under no obligation to take out a loan; rather, that credit score will largely determine what amount you can qualify for and what type of interest rate you will be charged. For instance, a poor credit score rating of 500 would qualify you for a sky-high interest rate of 39.99% while a very good credit score rating of 800 would get you the considerably better interest rate of 5.9%.
As for whether that credit check will affect your credit score, Mogo claims that checking your rate won’t affect it. However, at the time of publication, Mogo’s FAQ section stated that it “really depends on your credit history.” Mogo has since revised this section to clarify that they do what is called a “soft check,” which has no effect on a credit score. Once you agree to the loan, Mogo then does a full bureau report—known as a hard check—which does impact your credit score.
Soft checks are often used by individuals to check their own credit score, or businesses in order to offer you goods and services. This contrasts a hard check, which does affect your credit score. A hard check will have a greater impact on those with short credit histories or few accounts.
2. Even with bad credit, Mogo will give you a loan—but be careful
What sets Mogo apart from more traditional lenders is that they won’t flat-out deny you a loan based on your credit score. So even those with poor credit scores may still qualify for one of three different types of loans Mogo offers. MogoLiquid is the largest type of loan offered, with amounts up to $35,000 available. MogoMini will grant you up to $2,500, while MogoZip offers an emergency advance loan of up to $1,500.
As a word of caution, those with bad credit need to be particularly careful when taking out a payday loan with MogoMini or MogoZip. Short-term, high-interest loans like MogoZip often cost a sizable chunk in interest charges on top of paying back the loan. Because of that, Heath doesn’t recommend these types of high-interest rate, short-term loans to anyone. But, he says, “at least if they can offer payday loans cheaper than the competitors by leveraging technology, they’re doing a service to Canadian consumers.”
3. Mogo will help you pay off high-interest debt at a lower rate
If, for instance, you’ve got a bank loan with an interest rate of 9%, you may look to Mogo for a loan with an interest rate of 7%. That way you can pay off your higher-interest bank loan with the lower-interest Mogo loan and pay less interest in total, saving you a chunk of change. Heath points out that the “opportunity to pay off higher-rate debt with a lower interest rate option makes sense generally, as long as there are no strings attached.”
4. Mogo’s prepaid Visa cards come with fees
Mogo offers something called MogoCard, which is their fancy name for a reloadable prepaid Visa card. You load it with money in advance, and then use it like a credit card. There’s no interest to be paid on it, and since it’s not an actual credit card, there’s no need to get a credit check to get one.
Cards like these are often touted as a financially responsible way to keep a lid on spending by avoiding debt or overdraft charges—particularly for younger people. But as with most prepaid credit cards, there are still fees attached. For instance, Mogo earns money with their prepaid cards by deducting $1.50 from the prepaid funds for ATM cash withdrawal. While there are no monthly fees or loading fees, if you don’t use the card for 91 days, Mogo charges you an inactivity fee of two dollars per month until your balance is zero.