spyrogyra
Member of DD Central
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Post by spyrogyra on Mar 13, 2018 17:50:27 GMT
There's a standard repayment structure that banks and financial institutions use. Loans are paid off in equal installments. If you look at the repayment tabs for Mogo loans, you will notice that the repayments are not equal and what is really strange and alarming is that they start from a small amount and grow through the repayment period. That must have a very negative effect as borrowers may feel comfortable with the repayments in the beginning but they may turn into an unbearable burden further down the line. The loans with a big balloon payment at the end of a 5-year repayment plan are posing even a bigger risk. Because partial repayments of capital mean the LTVs don't go down with time (on the contrary, in many cases), a borrower will be less likely to pay off the debt with that kind of repayment schedule. A common borrower's logic would be: Hang on, I've been paying back 5 y of interest and capital, this car value now is less than what I still owe them? Another puzzling thing is LTVs over 100%. If the borrower needs a bit of money on top of the money for the purchase of a car, Mogo can provide a personal loan, something that they offer. As a lender, I prefer to separate my secured from the unsecured loans. It's almost unbelievable that there are loans with LTVs over 100% after a year of repayments. So let's think about this - how much would a 1999 car cost in 4 years time and how many would be inclined (or can afford) to pay off 1000s in an outstanding balloon payment? Even those with some cash reserves would need it to pay a bit upfront for a replacement car. Recently I rang Mogo and I have asked whether they have the practice to fit and monitor the vehicles through GPS tracking devices. It turned out they don't. Which must contribute to the high costs of recoveries. By scratching up data from loans with no buyback guarantee it transpires Mogo does not achieve a good rate of full recoveries. One may ask why am I so much concerned about such things having in mind that there's a buyback guarantee. Because if they do not run a tight ship, at some point in time the buyback guarantee will be totally useless. Below is a link to an online loan calculator: www.thecalculatorsite.com/finance/calculators/loancalculator.phpRe-inventing the wheel is never a good idea. |
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Post by southseacompany on Mar 14, 2018 2:50:30 GMT
The same skewed installment schedule is used by many other originators besides Mogo. It was discussed a year ago in this thread. I believe your conclusions are correct. |
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Post by Jonas Hendrickx on Mar 14, 2018 3:05:16 GMT
Balloon payment isn't necessarily bad. It allows people to prepare for the final big payment, which is easier than trying to keep up with a full amortization depending on the situation. Used cars can come with a lot of problems in the beginning and may need repairs. 5 years is plenty to prepare for.
The question is do you want to invest in a 20 year old's loan with a BMW 5 or 7 series or the 40 year old with a Toyota.
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Post by tomas on Mar 14, 2018 6:14:33 GMT
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fric
Member of DD Central
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Post by fric on Mar 14, 2018 7:07:01 GMT
Well, regarding recoveries from auto loans we have to realise one very significant thing. Yes, its a collateral, but its a bad collateral. Its not newly built house or a standard flat in a big city etc. Mogo is giving out loans against cars that doesn't have too much value, thus it means its old and got quite a bit of mileage. Also Mogo are giving loans to people who can't spend 1-5k eur on a car and also cannot get a loan in a traditional banking lender (I think banks in Latvia never give specific collateralised car loans to cars older than 10 years, you can get a regular consumer loan at higher %, but you still need good credit history and income to get that). So imagine what happens when the car "suddenly" needs a nozzle change for diesels or there are problems with automatic gearbox because the real mileage is at least half a million? The person who went to Mogo for a car loan most likely doesn't have the money to actually do significant repairs. A car costing 2-3k with a broken automatic is basically worthless unless you can find a cheap used one and hope it will last for some time.
Than also remember that debt recovery itself isn't free, so yeah even with the collateral its a risky investment.
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Post by dutchman on Mar 18, 2018 10:20:15 GMT
Its interesting to see/read how the buyback guarantee really works.
so basically the loan originators like mogo charge between 25% and 100%+ on car loans, and pays us investors something like 13%, the rest they keep to guarantee the buy back.
the guy (or girl) who gets the loan to buy the car pays equal payments each months.
but we as investors see amounts going up on the mintos site, does that mean that Mogo/ the loan originators take out the big hump at the start? to minimize their risk even more? i guess so.
i guess it all depends on how big the loan originators buy back buffer is in case of some big ression/2008 event, future will tell...
they obviously would like that money to work instead of sitting there doing nothing, so loan out even more (and minimizing the buffer)
for what its worth, i understood from that interview video from mintos (see other thread) that mintos keeps an eye on the numbers...
In anther interview with bondora ceo, he mentioned this was exactly the reason why bondora doesn't offer buy back. (not that i'm a fan of bondora)
i think you should expect that in a 2008 event, some loan originators will go broke and you loose some of your money.
but well, keep in mind that banks only have a few % of buffer too, no bank is capable to withstand a bank run.
And even worse, when you bring euro 1000 to a bank, by central bank policy they are allowed to lend out 10x that amount. its a crazy world ;-)
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Post by explorep2p on Mar 18, 2018 21:49:04 GMT
This is a really interesting debate. There's a lot of different things to consider. Mogo has been performing very well, but there's no guarantee that will continue to be the case for the next 4/5 years. The longer the loan, the more risk surrounding Mogo's ability to buyback defaulted loans. The effective LTV on the longer term Mogo loans will always be quite high, as it takes a long time for the principal to be reduced (due to a combination of high interest rate paid by the borrower, longer amortisation period, and a depreciating asset). The generous cashback currently offered for the longer term loans suggests it is difficult to finance these from normal funding channels (banks or institutional investors). That being said, the effective yields for investors are very high, and a lot of investors will think it is worth the risk to buy the longer dated loans. There's also a risk that Mogo could start to reduce the rates it offers investors over the next 24 months, and locking in longer term assets helps investors to lock in some high returns (assuming they don't do a Hipocredit and repurchase the loans).....
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fric
Member of DD Central
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Post by fric on Mar 19, 2018 7:18:38 GMT
Just use their homepage calculator: A 48 month car loan of 4100 eur will give you 149.20 eur monthly payments. Thats 7161.6 eur in total, not including any commission fees etc. A similar loan recently issued and listed on mintos: www.mintos.com/en/2650918-01This specific loan listed on mintos marketplace is going to give investors back only 5351,24 eur (principal + interest). So, sure the calculator in the website is only indicative and interest varies from loan to loan, but it shows you the trend very well how much Mogo (or any other non-bank loan originator on mintos for that matter) takes themselves. Besides, aren't those calculators usually a bit too optimistic in regards to interest rates, just to lure in more customers? Yeah, and also don't forget loan signing fees, late payment fees, fees for amendments in the loan etc. |
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