Upstart Loans Review - Benefiting Borrowers with Unique Underwriting

I recently had the chance to talk to Dave Girouard, who is the former President of Google Enterprise and is now the founder of Upstart - a company that is taking a unique approach to peer to peer lending. Upstart is made up of 15 employees, half of which are from Google.  Traditional and other peer to peer unsecured loans focus on credit score when it comes to determining the probability of loan repayment.  Upstart goes beyond the credit score. 

For recent graduates with a thinner credit file, it can be hard to get approved for a loan.  This is where Upstart comes in. Launched April 23rd in the US, Upstart uses its proprietary income prediction algorithm to include earning potential when determining the ability of a borrower to repay.  This includes data points such as schools, academic performance, standardized test scores and major to get a grasp on ability and propensity to repay.  As Dave points out in this video,  (Fox Business - After the Bell) , they are identifying Prime borrowers before they are recognized.

Dave mentioned that most view this demographic as risky, equating youth and lack of credit history to risk.  They leaned on their experience in hiring at Google where they determined who is likely to be a successful employee and applied aspects to their unique underwriting process. Dave stated that while these borrowers may have small credit files, there is actually tons of data on them, others are just not looking at it.  Additionally, research shows that young borrowers are actually less likely to default.

The makeup isn’t just new graduates either, 30% of borrowers are over 30 years old.  Borrowers at Upstart are either employed or have accepted a job that starts within 6 months. To be eligible, borrowers must have graduated from a 4 year accredited institution. Additionally, they must have a minimum FICO score of 640 or in the case of an insufficient credit history, Upstart will still accept applications. Although borrowers are able to apply for unsecured loans for any reason, it is no surprise that credit card consolidation is a major one.

There is no cost associated with applying for a loan, but like other peer to peer lending companies - there is an origination fee. The current rates and fee structure are outlined below.

Like Lending club and Prosper, they are a marketplace where accredited investors are able to select who they invest in.

Upstart is already making great strides with several hundred applications everyday and are originating 10+ loans per day. Average loan size is $15,000, although they offer loans up to $25,000.  Rates vary from around 6% to 20% APR. They hope to originate a few thousand loans before the end of the year and I look forward to watching them grow.

Further reading: Lend Academy recently covered changes to Upstart that benefit investors. If you’re an investor, it is worth reading.