Upstart Peer to Peer Lending
Upstart is an online peer-to-peer lender that allows borrowers to check the rates they qualify for in as little as two minutes. If you receive approval, you can have your funds by the next business day. Launched in 2014, the company has already originated $220 million in loans. Borrowers can receive a loan for a variety of reasons which include paying off credit cards or student loans, debt consolidation, paying for college or grad school, mortgages, medical bills and more.
What makes Upstart unique is they do a soft pull on your credit history to find out your score. This is different from traditional lenders in that they will not do a hard pull of your credit histories, which shows up on your reports and can impact your score, until they are making the final decision to offer you a loan. With this in mind, Upstart is a safer way to apply for a loan without affecting your credit score.
The application process for the peer to peer loans offered by Upstart is fairly simple as well. Potential borrowers only need to complete a short online application. Once the application has been completed, preliminary interests will then be sent to you based on the information provided. Once approved, the money will be sent to the account provided once your loan has been funded.
Upstart's approval process is unique and ideal for students and other people with un-established or weak credit. While traditional lenders check the borrower's credit bureau report, FICO score and current income, Upstart considers other criteria.
The company developed an algorithm which calculates an applicant's likelihood of defaulting on a loan. So while the algorithm does consider the borrower's credit score, it also weighs other factors such as education level, job history, area of study and grades. So if you're a recent graduate, it makes it a lot easier for you to access loans when compared to traditional lenders.
This is a boon to recent graduates because, in most cases, if you're fresh out of college you likely don't have the credentials necessary to be approved for a loan at a favorable rate. As a result, many potential borrowers are considered to be high risk for lenders.
Upstart's algorithm has determined that young borrowers, even those with mediocre credit, are actually more likely to repay on time than their older counterparts. This approach truly separates the company from traditional lenders as about 70% of its clients are under the age of 30.
Borrowers must meet the following requirements for approval:
- A minimum FICO score of 640
- A debt to income ratio less than 50%
- A degree from a recognized institution. Applicants still in college must be graduating within six months of the time of application.
- A full-time job or an offer for a full time within 6 months from the time of application. Additional sources of income greatly increase a potential borrower's chances of qualifying for a loan
Upstart offers fixed rate loans where you can borrow anywhere from $3,000 (However, the minimum loan amounts are $6,000 and $7,000 in Ohio and Massachusetts, respectively) to $35,000. Moreover, the lender states they can save you as much as 30%, compared to using credit cards. Their rates vary from 5.69% to 29.99% depending on the applicant's credit score and other criteria. Their rates and qualifications are right in line with what similar lenders offer
When borrowing with them, you'll find them to be an expensive option at the onset. They charge an origination fee from one to six percent of the total loan balance at the time of closing. Depending on where you fall on their rating scale and how much you borrow, this can be a significant amount.
In addition, Upstart only offers three-year repayment terms. Upstart's relatively short repayment terms could be an issue for those taking out larger loans as their monthly payments will likely be much higher than they would be if they took out loans with another lender.
Once approved for a loan, individual investors choose to fund your loan. Your loan request will not be completed until your loan is fully funded by enough investors. While the funding process can take several days or even weeks, once fully funded, your loan is deposited into your account in one business day.
Further, similar to other lenders, they charge fees for late payments. While you will have a 10-day grace period from the due date to pay, if you miss the deadline you will have to pay a $15 late fee. However, considering they give borrowers ample ways to set up payments for free online and give you the ability to change your due date, it's easy to avoid this charge.
Lastly, Upstart issues no prepayment charges so borrowers. This is huge for those who want to pay their loans off prior to the three-year minimum term.
Upstart provides fast and prompt customer service over the phone Monday thru Friday. In addition, the company provides support via multiple e-mails. Upstart's website also features a Help Center with a variety of articles responding to frequently asked questions.
Like its competitors, Upstart requires potential lenders to be accredited investors. But the biggest difference is that Upstart requires just $100 for investors to begin. Such a small initial investment significantly lowers a new investor's risk.
Moreover, Upstart's thorough approval process helps ensure that investors have a high-quality crop of borrowers to choose from. Investors can feel confident in knowing that 98% of Upstart loans are repaid in full and on time. In addition, Upstart does not take any fees for defaulted loans. Some of Upstart's competitors do which often makes many investors feel like they are taking on all of the risk in the lending process.
Verdict - Great
Upstart makes it simple and risk free to see if you qualify for a loan with them. While their interest rates could save you money, the loan's origination fee can be steep making this an expensive option to consider.