Upstart reviews reveal that they are an excellent P2P lender with one of the lowest borrower default rates. Here's a quick explanation of what peer-to-peer lender is.
Peer-to-peer lending platforms (or P2P lending) operate from an online interface, which gives customers (even with reasonably bad credit history and credit card debt) the chance to qualify for a personal loan.
Unlike with banks, peer-to-peer lending platform companies conduct themselves outside of the stock market. Instead of accruing interest from stocks, P2P lenders use principal investments, from accredited investors, to finance a borrower's loan request. Peer-to-peer lending connects the borrower directly with a lender, through the P2P lending company, which acts as an administrative intermediary.
The biggest benefit for potential borrowers, in peer-to-peer lending services, as opposed to credit through a bank, is that P2P lenders can operate with lower overhead costs. This results in lower interest on loans for borrowers and higher rates of return for investors.
This is because of the Internet-based nature of the P2P lending industry. No money is wasted on physical stores and thousands of staff members to run them. Instead, peer-to-peer lenders—like Upstart—conduct business in a non-centralized fashion, allowing for smoother processes and direct contact between customers and the financial decision makers.
Peer-to-peer lenders make their money from an additional service fee, sometimes called an origination fee. Also, many P2P lenders will charge additional fees for a pre-payment made on a loan. Loans are paid back for a term, usually 36-60 months. The repayment term allows borrowers to steadily payback their loan and it gives investors a steady rate of return.
The P2P lending market is inherently more stable than that of the stock market. The volatility of money lost and gained on the stock market is seen as much steadier income from the P2P market. Put simply, when personal loans are being paid off on time, investors make a specified percentage rate of return on their principal investment. Conversely, when loans are defaulting, the rate of return is mitigated.
Just because peer-to-peer lenders operate outside of the banking system doesn't mean they're not regulated. Peer-to-peer lending companies are heavily regulated by law.
Peer-to-peer lending companies are required to comply with consumer credit and security transaction regulation standards. Beginning in 2008 and coming to fruition in 2011, the P2P lending industry became regulated by the Consumer Financial Protection Bureau and the Securities and Exchange Commission (SEC).
The SEC has instilled regulations on peer-to-peer lenders, which acts to prevent investors from putting money into P2P lending companies that have gone unregistered with the SEC. More and more, financial institutions are partnering with peer-to-peer lenders and creating marketplace lending options of their own. In some cases, individual banks have gone so far as to back a peer-to-peer lending company as an institution.
From the minds and talents of a few Google employees, comes Upstart. Since Upstart’s inception, after the creators left Google in 2014, it has created more than $300 million for use as loan capital. This is a good sign of growth, signifying that Upstart does a good job of vetting potential borrowers.
Investors are paid a return on the interest of their principal loan amount. The fact that Upstart has generated hundreds of millions of dollars for loans, means that borrowers of Upstart are able to pay back their loan within the repayment terms.
Though there are inevitably a few examples of defaulted loans with Upstart, investors are not being denied interest returns, indicating that Upstart is on a successful course.
Upstart, like all peer-to-peer lenders, uses proprietary criteria for assigning loan applicants a risk grade. After assigning a grade, Upstart will designate an interest rate for the loan in question.
Upstart assigns a grade based on many criteria, including a potential borrower's FICO score and credit history, debt-to-income ratio, educational background and outstanding student loans, employment history, whether they have a full-time job or a part-time job, and so on.
Grades are scaled from AAA to DDD—with AAA being the best and DDD being the lowest. The modeling system, which Upstart utilizes to assess any default risk, has been trumpeted for its accuracy of prediction.
Upstart reviews are excellent. The company has held the award for the lowest borrower default rates, spanning the industry at large, with a 94% rate of loans that either has been or are being paid off. This might be due, in part, to Upstarts target customer demographic, which is young professionals. Upstart claims over 90% of their loan borrowers hold a college degree and are start up small businesses.
Here's a video of a recent grad who used Upstart to fund her start up company:
Like a traditional bank loan, borrowers are vetted on not just their credit but also their usage plan. If approved to borrow a loan from Upstart, the borrower’s grade will dictate their loan’s interest rate, on a scale of 4% to 26%. Upstart offers loans on a fixed repayment term of three or five years, and in the amounts between $3,000 and $35,000.
Upstart differs from Lending Club in the way it deals with investors. Many peer-to-peer lenders, including Lending Club, charge investors a percentage fee on a regular basis, which cuts into the return profits for an investor.
Upstart does not charge investors any fee. Therefore, if a loan goes into default, Upstart covers an investor's return. The only income that Upstart takes is from a borrower's origination fee, which is set between 1% and 5%, based on the loan’s original amount.
Upstart favors investors and the quality of borrowers over a high customer quantity business model, which some of the larger lenders in the industry practice. However, investors do not get the option, as they do with Lending Club, to pick and choose which loans they would like to invest.
Upstart holds administrative control over investment allocation, regarding specific loans and individual borrowers. Though investors do not get the opportunity to invest on a loan-by-loan basis when investing an initial amount (at least $100) they will set the specific criteria and grades of loans in which they wish to invest.