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Who is Upstart and are they a legitimate company?

Upstart is a bit unique in the lending industry. Primarily because they’re not actually a lender. They create the technology that empowers banks and credit unions to lend to customers. They have over 90 banks and credit union partners through which you may actually borrow if you apply through Upstart. But, let’s not overstate the breath of their network. Over 70% of their loans are going to their top two lenders. 

Upstart is a publicly traded company (UPST) and so has a lot of visibility in the industry. So, you can feel comfortable that they are a real company.

What is it like to apply for an upstart loan?

In some ways applying for a loan through Upstart resembles the same process you might go through to apply for other lenders. They will ask for access to your credit report and your bank data, employment and income information, and confirmation of your identity. In some cases they may ask you for additional information beyond that like educational transcripts and debt statements.

Almost 90% of applicants will go through this system automatically, meaning you will never have to talk with a customer service representative. One in every eight applicants might need to provide more information or might need to speak with someone to straighten things out.

Things get a little bit different when you receive the results of your application. One of three things can happen after you submit your application: first, you can receive a simple email denying your application; second, they may request additional information; or three, you may see one or more loan offers. If you get multiple offers you will be able to choose the one that best meets your needs.

Getting multiple offers is good, right?

Well, yes. But it probably isn’t as decisive as it sounds. The process for deciding whether to give you a loan is still done by Upstart and their models. The different lenders are just selecting different levels of risk that they are willing to accept. So, by all means, apply with Upstart, but you also owe it to yourself to shop around to other companies, with other lending algorithms. 

Where else can I shop around for a loan?

At The Yukon Project, we’ve tried to make shopping around easy. If you go to our marketplace page, you can select one of our premium lenders and apply. We will also check your rate with up to 40 other lenders without it hurting your credit score. That way, you can make sure you’re getting the best loan for your situation.

Is it hard to get approved with Upstart? 

Upstart claims that they have sophisticated AI that allows them to approve more people for better rates. It’s hard to prove whether they really can approve more people, but the evidence suggests that their approval rate is about the same as other lenders who serve people with Fair to Good credit. 

I suspect that we should be a bit skeptical of the AI claim. First of all, powerful AI systems are notoriously mysterious about how they work. But, by law, lenders need to tell applicants why they were denied. Lenders can’t just deny you. They have to explain what factors led to your denial: high debt-to-income ratio, poor credit history, stuff like that. Also, experts who study the lending industry point out that Upstart has yet to weather a deep recession, which would put their models to the test. It just isn’t clear how well they perform. 

One of the downsides to Upstart’s system is that they want more information from you in order to feed into their models. You might have to submit a lot more detail than you would for other lenders. Some customers are left with an uneasy feeling that the company is just hoovering up their personal data.

Now, if you apply with Upstart and find that they keep asking you for more information. Or maybe they complain that the information isn’t working for them. It might be that they are looking for a reason to deny you. In this case, you might get the maddeningly unhelpful explanation that they they are rejecting your application because they couldn’t “verify your information.”

There is another–more frustrating–reason it might be harder to get approved by Upstart. Upstart’s business model relies on securitization of their loans. That’s just a fancy way of saying that they sell the financial upside of their loans to investors. When they sell the value of your loan, it gives them upfront the money you would have paid them over time. That allows them to use that money to issue more loans. If they have a hard time finding investors–which is happening right now–they have less money to lend out and are going to deny more people that they otherwise would have approved. So, don’t take it personally if they deny you. It also doesn’t mean someone else wouldn’t have approved you. 

What is the APR on an Upstart loan?

The APR on loans generated in the Upstart network ranges between 7.8% and 35.99%. The rate you qualify for will depend on your particular credit history. I think it is reasonable to assume that most of their applicants are receiving interest rates between 18 and 28%.

Do Upstart loans have an origination fee?

An origination fee is a fee that a lender charges when they originate the loan. They usually take the fee out of the proceeds of the loan. So, if you were borrowing $10,000 with a 5% origination fee, you would receive $9,500, but would still need to repay $10,000. Upstart says that they charge between 0 and 12% origination fees. A 12% origination fee is one of the highest in the industry, so you will want to pay particular attention to what you are offered. 

You need to keep in mind that origination fees are not usually refundable. So, if you take out a loan, but pay it off months earlier, you probably shouldn’t expect a prorated reimbursement of your origination fee. That, of course, doesn’t mean that you shouldn’t pay off the loan early as it will save you money on interest. It just means that if you know you are going to pay your loan off early, you want to find a loan with the lowest origination fee. 

Also, origination fees, by law, will be included in your APR. So, your APR will be the interest rate plus unavoidable fees, like the origination fee. 

Why did my preapproved offer with Upstart change?

If you get a “preapproved offer” through Credit Karma or in the mail, the loan terms can change with the final offer. You can even be denied after a preapproval. There are two reasons why this might happen. The first is the time delay. Upstart sent you a preapproval letter based on information in your credit file as it looked a few weeks earlier. If something has changed in your credit report since then, it could trigger a denial with their algorithm. 

The second reason why you could be denied is that you will submit more information with the actual application–like bank account data and income information. If this new information doesn’t align with their decision algorithm, you could be denied, offered less money, or given a higher APR. For most lenders, only about 10% of pre-approved offers are rescinded. So, it’s not super common, but it does happen. 

Is taking a loan from Upstart a good idea?

There is nothing about Upstart that would suggest that borrowing through their network would be bad for you. That does not mean that they will be able to get you the best rate, best terms, or the amount of money you need. So, there’s no reason not to apply to Upstart, but you should also apply to others as well.

Picture of Jonathan Walker

Jonathan Walker