Online lender Upstart launches car loan platform

Online lender Upstart is launching an auto lending platform that it will use to make direct auto loans and sell to banks and other lenders.

The software incorporates much of the same logic and data modeling as the platform used by Upstart to make personal loans.

Paul Gu, co-founder of Upstart, says his company, through its personal loans and now its auto loans, lends to people who would not traditionally be considered to have prime credit based on their credit ratings, but who are in fact creditworthy.

Upstart was one of the first fintech online lenders to use alternative data – such as potential borrowers’ cash flow (derived from their bank account information), education and occupation data – and analyze using artificial intelligence to make automated lending decisions. Upstart received a no-action letter from the Consumer Financial Protection Bureau in 2017 that allowed it to continue using alternative data while the bureau monitored reports of who applied for and received these loans. The San Mateo, California-based company says it has made $6 billion in unsecured personal loans to date.

“Automotive came to us very naturally,” said Val Gui, Upstart’s chief executive. “It’s a big market, and there are a lot of people paying way too much for auto loans.” The auto loan market is about $1.2 trillion, he said.

Upstart’s auto loan underwriting model looks at more than 1,500 factors to assess risk, he said. The credit approval process takes minutes. In the app, Upstart automatically finds and fills in the information it can find about the borrower’s existing car loan, if any. It then presents some alternative loan offers from which the car buyer can choose.

Paul Gu, co-founder of Upstart, said the company, through its personal loans and new auto loans, lends to people who aren’t traditionally considered prime credit based on their ratings. credit, but who are in fact creditworthy.

“Credit rating and credit history are barriers that prevent people from getting affordable credit,” Gu said. “They don’t reflect a person’s actual risk.”

When banks use Upstart’s personal lending platform, the company has incorporated their lending philosophy into its model, he said. The same will be true for the car loan platform.

The company didn’t say how much it would charge lenders to use the car loan platform, but Gu said pricing was based on the number of loans issued.

“If we are not able to help the bank convert many loans, we will share the inconvenience,” he said.

Many online lenders have struggled during the pandemic. Gu acknowledged that Upstart was also affected. The company’s default rate is 5.8% due to deferrals and requests for difficulties. But Gu said that figure is a fraction of what others in the industry are reporting.

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