Upstart Loans Review

Upstart is an online lender that uses cutting-edge technology to evaluate the creditworthiness of borrowers seeking personal loans. Rather than focusing solely on numbers such as credit score and debt-to-income ratio, the lender considers education levels and earnings potential in determining loan amounts and corresponding interest rates. Being a lender that only operates online, Upstart’s rates are appealing not only to those building their credit but also to established individuals who use personal loans for various purposes. However, consumers who value personal interaction in lending won’t find any branches across the country, and Upstart doesn’t conduct business in Iowa or West Virginia.

Upstart at a glance

Pros
  • Good for college graduates
  • Considers education and area of study for approval
  • Great option for online borrowers
Cons
  • Up to 8% origination fee
  • No physical branches
  • Lackluster rates for top-tier credit

What’s interesting about Upstart

Upstart uses complex computer algorithms to determine which borrowers pose the best risks for full repayment of principal and interest. The lender claims its model leads to twice as many approvals as traditional credit analytics, with half as many defaults. Upstart was founded by ex-Google employees in 2012 and has corralled some notable investors, including Mark Cuban and Salesforce founder, Marc Benioff.

You can jump on the Upstart website and receive a personal loan rate by entering some basic financial and personal information. Plugging in that data and getting a preliminary rate will not affect your credit score (a soft hit), but if you decide to accept the funding, a hard credit hit will apply. Customers who enjoy handling their finances online and on mobile apps will appreciate this process, and funds, once approved, can often be disbursed in one business day.

Things to consider

One of the main drawbacks of borrowing from Upstart springs from its high fee structure. Origination fees can cost a borrower up to 8% of the loan amount, and that figure is much higher than similar costs levied by competing lenders. On average, most personal lending entities charge a flat fee between $50 and $100 or a percentage-based rate of 1% to 5% of the loan amount. So, along with rates, you’ll need to factor in the acquisition cost before you decide if the deal stacks up well against other lenders.

Personal loans

Upstart’s only product is a personal loan with rates that range from 5.67% to 35.99%. The maximum loan amount is $50,000, which is twice the amount set by competitors, such as One Main Financial. A minimum FICO score of 620 is needed for borrowers with established credit, but applicants should have no delinquencies or recent bankruptcies on their reports. Late payment fees are reasonable by any standards; late payments can garner 5% of the past due amount or $15, whichever is greater. Paying off the debt early poses no issue, as prepayment penalties don’t exist. Also note that some states have restrictions on minimum loan amounts. 

Mortgage loans

Upstart does not offer mortgage loans to borrowers, so anyone shopping for a home loan needs to find a different provider. Depending on needs and preferences, prospective homeowners can find traditional mortgage officers in physical locations with nationwide lenders such as Chase Bank, which manages more than 5,000 branches. Chase fixed-rate mortgages for both 15- and 30-year terms sit below the national average of 3.20% and 3.72% respectively. The application process can be initiated online or by walking into a Chase location and speaking with a loan officer. Online shoppers might opt for lenders such as Better.com, which boasts pre-approval status in a day under certain circumstances.

Mortgage refinancing

Upstart doesn’t handle mortgage refinancing, so consider a bank that works well for homeowners looking for a more favorable deal. For folks who know their way around the mortgage process, First Internet Bank comes highly rated by customers who want a straightforward approach to refinancing. Online mortgage information allows comparisons between products, and the bank quickly emails preapproval responses. Even though its name suggests online-only, First Internet mortgage officers will reach out to you very soon after the preapproval request. The FHA 30-year fixed rate of 3.375%, with no points, is below the nationwide average.

Home equity loans & HELOCs

Neither home equity loans nor home equity lines of credit (HELOC) fall within Upstart’s purview. But, the lender does label its personal loan option as a “home improvement loan,” with some differences outlined in the specific informational section. Mainly, Upstart points out that you don’t have to tap into the equity in your home as one of the conditions of the agreement. That’s one advantage, but financing home additions or upgrades could prove difficult if you plan to borrow more than $50,000 for the project. Also, three- or five-year terms make it pricey to finance the max loan limit allowed by Upstart. Homeowners that need to spread payments out over longer terms might look to traditional home equity lenders such as PNC Bank or Fifth Third Bank.

Car loans

You could certainly use a personal loan through Upstart to purchase a vehicle, but it’s not difficult to find an auto lender that will offer better rates and terms that extend beyond five years and $50,000. However, those with poor or new credit might find that Upstart’s 5.79% rate will work for them. The issue becomes whether folks in credit-rebuilding phases will be able to secure that minimum rate. If the rate offering soars higher, car buyers could find better options through U.S. Bank or LightStream.

The final word

Propelled by new technologies like machine learning and artificial intelligence, Upstart has found a way to grow its business but not its product offering. Using algorithms to predict risk is great for profit margins but not so much for first-time homebuyers or individuals seeking better rates for a new car loan. However, Upstart’s business model does consider college grads headed for lucrative careers in Silicon Valley and other tech hubs. That makes sense, being that the company was founded by one of the biggest names in the tech industry. The lender is just not a complete option for mainstream borrowers who fall outside the new credit or rebuilding credit categories.