Upstart Review

Upstart is a solid choice for a personal loan. They are a lending platform that partners with state and/or federal regulated banks providing origination and underwriting services. They use a non-traditional, artificial intelligence based underwriting approach that considers both traditional factors (credit, income, and debt) and non-traditional factors (education¹ and employment history) when making loan decisions. This means in theory Upstart may arrive at loan qualification, interest rate, and loan fee decisions different from traditional lenders.

We believe today, the real value that Upstart offers to its bank partners is an automated online application and origination process versus any material change to the underwriting process. This alone has value to a consumer as it may simplify the process. We also like different approaches to the market as it brings innovation and new options, so we look forward to seeing how Upstart evolves over time. Upstart partners with state and federally regulated financial institutions and has competitive rates and offerings. We think they are worth considering when thinking about a personal loan.

Product

Loans through Upstart range from $1,000 and $50,000² with a typical effective APR between 7.98% - 35.99%³. The term for these loans ranges from 3 to 5 years. They have origination, late, return check, and paper statement fees. The origination fee ranges from 0% to 8% and is a one-time, non-refundable fee that is deducted from loan proceeds once approved for a loan. Late fees are the greater of $15 or 5% of the unpaid loan amount and are charged per occurrence for payments made more than 15 days from your due date. The return check or ACH return payment fee is $15.

Individual rates, fees, loan amounts, and loan terms are subject to change and will depend on various individual factors including an applicant’s education history¹, work experience, credit history, and state residence. The numbers provided here are general estimates. Always check Upstart's website for the latest rates, terms, and eligibility.

Loan Eligibility and Requirements

Upstart shared with us that to check eligibility, you will be asked to provide information about your academic history, work experience, and what you plan to do with the loan proceeds. Any offers you received will be contingent on the verification of what you provided plus an additional hard pull of your credit report. Checking to see your rates and eligibility will not impact your credit score. If you do decide to apply, your credit profile may be impacted as they will do a hard pull.

To qualify for a loan, borrowers must

1. be residing in the 50 US states (you do not have to be a citizen or permanent resident) with exceptions for military personnel,
2. be at least 18 years old (applicants from Alabama and Nebraska must be at least 19 years old);
3. not be residing in Iowa or West Virginia,
4. have a valid email account,
5. have a verifiable name, date of birth and social security number,
6. have regular, verifiable source of income of $12,000 or more annually — such as full time job, a full time job offer starting in 6 months (except if accepted to a partner bootcamp and seeking employment after graduation), a regular part time job, or another source of regular income,
7. have a personal banking account at a U.S. financial institution with a routing transit number,
8. if the consumer has one, have a credit score above 580 in most states (varies by state),
9. not have any bankruptcies or public records on your report,
10. not be currently delinquent on any accounts.

Upstart's models may also check how much debt you have in comparison to your income.

Existing borrowers on the Upstart platform must (i) have made on-time payments for your 6 previous consecutive payments, with no failed payments, (ii) have no more than one outstanding loan in the Upstart Loan Program at the time of application, and (iii) have no more than $50,000 of total principal outstanding at the time the loan originates. If you have finished paying off an existing loan and made on-time monthly payments for the 6 previous consecutive months, you are able to apply for a second loan after your most recent payment is cleared (14 days from the payment date). If you have finished paying off an existing loan and any of the 6 most recent monthly payments were not on time or you paid off the loan before reaching 6 monthly payments, there is a 60-day, cooling-off period before reapplying.

Funding and Payments

If you accept your loan and complete all steps before 5 pm ET on a business day, you should receive your loan proceeds approximately the next business day. If accepted after 5 pm ET on a business day, you should receive your loan proceeds approximately 2 business days later. For loans that are being used for education-related purposes, there is an additional 3 business day period between when you accept your loan and when you will receive the funds. To receive the loan proceeds you must add and verify a personal bank account in your name.

Once you receive your loan, payments can be made through either recurring ACH, manual ACH, or check. Upstart does not lend its own money. Instead, they are the origination engine for banks. This means that once you go through the Upstart application and underwriting process, if you are approved, you will get an offer from one of their partner banks. Your loan will actually be through a partner bank. We assume this means all servicing, i.e. statements, collections, customer services, etc. will be provided by the underlying bank so will differ depending on who you get your loan from. We think in the long run more clarity on this would be helpful as your Upstart experience can vary greatly depending on their partner banks.

Upstart

The main differentiating feature for Upstart is their underwriting approach. Traditional lenders such as banks have used statistical models for decades to predict risk. Most banks generally use the same approach meaning everyone generally arrives at the same conclusion. Upstart's underwriting model uses an artificial intelligence based lending approach. Upstart's underwriting model tries to incorporate other information such as education¹ and employment along with new types of modeling to be able to better predict the likelihood of paying your loan back. They partner with banks and credit unions using this underwriting approach to offer loans.

An Upstart study completed in partnership with TransUnion found confirms that there is a clear opportunity for their different underwriting approach. The study found that 83% of borrowers have never defaulted on a loan yet only 45% of them have access to prime credit. This means the current approaches are mis-categorizing a lot of people. We think Upstart's approach has a lot of potential but will take time to develop. Today, the real value Upstart brings to its partners is an online origination process.

Upstart has originated over $5.2B in loans for over 300,000 borrowers. They are backed by Google Ventures, Khosla Ventures, and other leading investors. They are based in the San Francisco area and have over 200 employees. They originate loans for bank and credit union partners. These loans are regulated and appear to be serviced by banks.

We think they are a solid choice.