Upstart Review: Expensive Personal Loans For All

Upstart is a personal lender based in San Carlos, California. They charge between 6.5% and 35.99% APR for their personal loans. That's right, up to 35.99% when the 10-year bond yield is under 4%.

David Girouard, co-founder says the average interest rate charged is 12% according to a Techcrunch interview he gave.

12% is still very high folks. Not even the great Warren Buffet has been able to achieve a 12% annual compound return in his illustrious career. If you had good to excellent credit, your interest rate for a personal loan would be closer to 6% – 8%.

I personally have a problem with personal lending companies that charge high rates. Venture Capitalists like them for the simple fact they can take advantage of people who need money the most.

When you've lost your job due to a global pandemic and have a hard time providing for your family, the right thing for a lending company to do is lower rates, not keep them excessively high and cause more strain on the borrower.

I question people who spend their lives trying to profit off other people's financial woes.

Who wakes up one day and thinks, “I want to start a personal lending company to extract fat margins off struggling people!”? Greedy people who are mainly driven by money.

Upstart Personal Loans

Here's the thing you will hear from private personal lenders, once known as loan sharks. They say they are providing a service to those who have a difficult time getting loans in the first place. They also say they are helping people consolidate their credit card debt, which charges them a higher rate.

Yes, it is definitely better to charge people 12% than 20% if that's what their borrowers are mostly doing. But do you really think most borrowers are looking to get a personal loan to consolidate their credit card debt? That would be very responsible for them to do. But people who have large revolving credit card debt in the 20%+ range are not exactly your most responsible borrower.

This is where Upstart charges up to 35.99% for their personal lending comes in.

What Upstart Personal Loans Are Used For

Upstart personal loans can be used for a variety of purposes, including debt consolidation, medical expenses, home improvements and college tuition. Think about it. The only reasonable reasons to use a personal loan are for debt consolidation and medical expenses.

Using an expensive personal loan to pay for expensive college tuition when the value of a college degree is depreciating is absurd. Using a personal loan to pay for home improvements is absurd as that is obviously a want. Nobody needs a nicer bathroom when what they really should be doing is paying down their debt.

The one good thing is that, Upstart and others can help consolidate loans to a lower interest rate.

Upstart Customer Profile

The average Upstart customer profile looks like this:

  • 688 weighted average FICO score
  • $80,764 weighted average income
  • 75.7% refinancing credit cards
  • 79.1% college-educated

Upstart’s underwriting helps younger applicants or others who have thin or no credit history but high earning potential, according to a company spokesperson. The company assesses factors like college degrees, area of study and job history.

David G. says “Our average borrower is 28. The most common use of [our loans] is to pay credit card debt, though it’s really a personal loan that you can use for anything.” Think about them like those credit card vendors you met in college.

Credit requirements: For applicants with credit history, Upstart requires a minimum credit score of 620, no recent bankruptcies or delinquent loans, and fewer than six inquiries on a credit report in the past six months, not including inquiries related to student loans, car loans or mortgages.

Fast funding: Upstart provides quick loans funded within one day, except for loans for educational expenses, which are subject to a three-day waiting period. Students may need to supply additional documents, such as college transcripts and SAT scores.

Loan example: In another statement from Upstart in 2018, their average three-year loan has an annual percentage rate of 20% compared to the 12% they stated in a Techcrunch article. For a borrower with average credit, a three-year, $10,000 personal loan at 21.8% APR would have monthly payments of $381. 20% APR is absurd folks. Do not borrow from Upstart at that rate!

Average credit card interest rate
Average credit card interest rate is ABSURD

Upstart Loan Terms

Upstart offers only two loan terms: 3 and 5 years (36 and 60 months, respectively). A down payment is not required and you can pay off the loan early without incurring a penalty. Loan rates vary by state. Upstart doesn’t offer loans in West Virginia or Iowa.

To get an idea of what the average loan looks like, Upstart provides an example: “The average 3-year loan offered across all lenders using the Upstart Platform will have an APR of 20% and 36 monthly payments of $35 per $1,000 borrowed.”

Pay Down Debt & Invest Instead

If you are in a hole, stop digging. Please don't borrow more money. Instead, start paying down debt. You will never be free if you have debt. Your lender owns you.

Not only should you pay down debt, you should start regularly investing your cash flow as well. Check out my FS-DAIR model to figure out how much debt to pay down and invest. Ideally, you should be doing both and be debt-free by the time you retire.

Upstart Alternative

An Upstart spokesperson claims it’s well-funded (raised $50 million from Progressive in early 2019), but the company says that 10% of its borrowers have already either defaulted on loans or negotiated a due-date extension through April. Moreover, some of Upstart’s loans are trading at the distressed levels of just 65 cents on the dollar.

If you want a better alternative to Upstart, try Credible instead. They offer consistently lower personal loan rates. Credible has various pre-qualified lenders competing for your business so you can get the best rate possible. Credible's personal rates start competitively low and its lenders can lend up to $100,000 per individual.

** Learn more about Credible now. **

DISCLOSURE Credible Operations, Inc. NMLS# 1681276, “Credible.” Not available in all states.

If you are in expensive credit card debt, please take a look at the chart below. The gap between the average credit card interest rate (17%) and the average personal loan rate (10%) has never been higher. It's worth taking out a cheaper personal loan to pay off your credit card debt.

Average Personal Loan Interest Rate

Chip away at your debt until you are debt free. I promise you, live is much better when you don't owe anybody anything.

About the Author: Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has invested aggressively in real estate crowdfunding.

In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $220,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.

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