Most Peer to Peer lenders, and traditional lenders in general, look to credit scores, income, and employment as their primary means of determining whether or not to give you a loan. There is a relatively new disrupting company in this P2P space that has found an alternative criteria for making loans, and it has a first generation of loans with a 98% pay off or on time payment history to prove that it works. This company is called Upstart, and it is already proving an effective upstart to the old school traditional way of doing business and making loans.
Upstart Intro & Background
Upstart is the relatively new kid on the block in the Peer to Peer lending space. They may only be from April of 2012 and have launched their online platform in May of 2014, but they have quickly set themselves apart for their easy to understand, follow, and utilize loan process. In about a year and a half, they have originated over $220 million in loans, and they are growing at double digits in a month over month comparison. It has taken them no time to secure $5.9 million in crowd-funded startup capital, obtain coverage in Forbes, VentureBeat, and Wired, and to be mentioned by the American Enterprise Institute as offering a means for student borrowing that makes more sense than traditional student loans do.
Upstart Founder and Management Team
Founder Dave Girouard was the one-time Google Enterprise President. He built from the ground up the now famous billion dollar sized Google cloud apps business around the world, responsible for overseeing development, marketing, sales, and customer support. Before this, Dave was an Apple product manager.
Co-Founder and Head of Product Paul Gu is responsible for the Upstart statistical models that are effectively employed to forecast employment and income. His background in quantitative finance stretches back to his time at Interactive Brokers where he was developing his very first algorithms for trading strategies while only 20 years old.
Co-Founder and Head of Operations Anna Counselman worked as the head of Gmail's Consumer Operations for five years during the period of time when it increased from only 150 million users to 450 million users. Before her impressive time with Google she also worked in operations leadership at McMaster Carr and a few startup companies.
Head of Business Development Jeff Keltner came to Upstart following six years at Google. While at Google, he built up and launched their Google Apps for Education programs, increasing market share from 0% to nearly 70% within the first four years. He also led Google's marketing endeavors for Google Apps in Global 2000, heading up the launch of Chrome devices for enterprise and education segments. Before this, he worked for several years in IBM direct sales.
Upstart maintains thorough statistics and averages on its borrowers. Thanks to this feat of useful information, we can tell you that their average borrower:
• Has a 693 FICO credit score
• Earns over $111,550 in annual income
• Uses the personal loan with Upstart for refinancing credit cards 72.9% of the time
• Has a 91.9% chance of being a college graduate
Upstart only makes personal loans. They do tailor them according to your personal needs, so you could borrow money as a personal loan for a car loan, college loan, or even business loan. Their business loans are still personal loans, which gives you the advantage of not having to worry about how strong your company's history or earnings are when applying for a personal-for-business loan.
How Upstart Works
Upstart looks at so much more than credit scores, as banks are mostly only interested in these days. They created their own unique and proprietary algorithm that extrapolates income and potential for earnings in its consideration of a borrower's ability to successfully repay the loan. They consider data points including schooling, level of education successfully completed, academic performance, major field of study, scores on standardized tests, and job and credit history to frame the likelihood and ability of repayment. This seems to be working out well for them so far as they have a 98% successful payoff rate or on time payment rate going nowadays.
To be eligible to apply for a loan with Upstart, the borrowers must have successfully completed and then graduated from a nationally accredited four year college or university program. They also need to demonstrate a minimum 640 FICO credit score. Borrowers are not required to possess a minimum income, but they do have to prove that their debt versus income ratio is under 50%.
Upstart is giving out personal loans ranging from a mere $3,000 to a whopping $35,000 at rates that they claim are as much as 30% lower than competing and traditional lenders. Their Annual Percentage Rates start from 4.6% and up. The average Upstart loan carries an APR of 15% and has a three year/36 month repayment time frame with payments amounting to $32 per month for every $1,000 customers borrow.
The platform is flexible enough to allow borrowers to prepay the personal loan early, without a penalty or fee. They encourage auto repayment setup to make sure that payments are on time and do not slip the borrower's mind. The only downside to their maximum loan term of 3 years lies in the shortness of the payment schedule as compared to rival lenders. THe good news is that less interest will be paid out, the bad news is that monthly payments are considerably higher this way.
Upstart offers a wide range of helpful services for you when you become a Peer to Peer loan investor with them:
• Algorithmically-Modelled Returns – The actual interest rate that is charged to a lender and payable to an investor is based upon the chances of default for any given applicant. This means that you are able to match your return and risk mix in order to put together a satisfying loan portfolio from their various loan grades.
• Automatic Investing Option – If you do not want to work through a wide range of loan grades and agonize over which you should allocate your P2P lending funds to, then you can leave it to Upstart to invest your funds automatically based on a customized investing plan that you set up via the platform.
• No Investor Fees – We love that Upstart does not charge any type or amount of fees for you to invest within their platform. This stands in contrast to most other money managers and loan platforms on the market. 100% of all returns go to you.
• Payout of All Origination Fees to Lenders in Event of Default – Upstart typically brings in from 1% to 6% in origination fees for their cut. When a loan defaults, they turn this fee over to you so that you are not out 100% of your principal at least.
• Ability to Invest Using an IRA – Upstart permits you to gain the tax advantages inherent in using your own self-directed IRA to invest in loans on the platform.
Upstart does not maintain a network of offices or loan officers scattered outside of their corporate office. Their one location and headquarters is found in Palo Alto, California at 2345 Yale St, Palo Alto, CA 94306. This way they keep their overhead low so that the interest fees can be paid entirely to you when you make loans to the borrowers.
Upstart Interface Screenshots
It is hard to argue with the investment security of having around 98% of all Upstart loans either paid off in full or current and on time with payments. At time of writing, all of their loan grades are yielding profitable returns ranging from AAA grade's 4.2% to E grade's 10% return.
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Upstart Complaints and Ratings
The Better Business Bureau rates Upstart an A- rating. They do not have any complaints outstanding, but their shortness of time in existence since 2012 keeps them from receiving the coveted A+ rating.
As some consolation to Upstart, they are the top-rated loan service on Credit Karma.
Upstart Customer Support
In only three years, Upstart has earned a reputation for being simple to utilize and having good customer service. We love that their customer service platform exists on all practical levels, with phone, live chat, and email all available, depending on the time of the day. When we emailed the company, we received a response back in only three hours. While there are no account managers who are assigned to be dedicated representatives for your account, their team members with whom we talked, emailed, or chatted all proved to be both helpful and extremely knowledgeable.
When we called, there were no wait times to talk with a company rep. Best of all it only needed a few minutes of phone time to have our questions satisfactorily answered. Besides this, the company website contains a huge amount of information, including a well-designed and easy to search Frequently Asked Questions page.
Upstart Costs & Fees
Some observers have remarked that the origination fees that Upstart charges its borrowers, ranging from 1% to 6%, are unfairly high. The late fees are more standard for the industry at 5% of the amount that is late. They also charge a $15 handling and processing fee for those who pay their loans by check. Other lenders might not charge their borrowers origination and processing fees, but the APR's at Upstart more than make up for the inconvenience of these fees.
Investors have the best deal in town at Upstart. They do not pay any fees of any kind, neither management fees, nor membership fees, nor transaction costs to be a part of and make investment loans with Upstart.
Final Words on Upstart
Upstart is still an almost new company having begun only back in 2012. Yet despite this fact, they are heroically gaining market share and growing at double digit rates on a month over month comparison.Their reviews are positive, their features so easy to utilize, their loan terms and approval are easy. Besides this, they have been positively reviewed by Fox Business, Forbes, and Venture Beat, as well as Credit Karma. For all of these reasons, we love this service and the investment opportunity that it represents for you. So long as you spread around your investment risk with a good mixture of loan grades, we do not see how you can go wrong with the Upstart investment opportunity and platform.
Pros of Upstart
- Application process is intuitive.
- The loans are structured around borrowers' needs.
- The 40% to 50% debt to income ratio that Upstart permits is considerably higher than many of their rival P2P services and platforms allow.
- Upstart works with lower credit scores than their P2P rivals do.
- Loans are distributed same day or the next following approval.
- Online applications and investor applications take just a few minutes.
- All loan grades are profitable at time of writing.
Cons of Upstart
- The maximum terms are very short at only 3 years.
- Origination fees are high.
Upstart is as close to a perfect P2P lending platform as investors will find, with auto investing or personal selection choices available, world-class customer service, and a wide selection of loan grades that all are profitable from which to choose. Origination fees for borrowers are the only downside to the service and platform.