Online lender Upstart is launching an auto loan platform that it will use to directly grant auto loans and sell to banks and other lenders.
The software incorporates much of the same logic and data modeling into the platform that Upstart uses to provide personal loans.
Upstart was one of the first online fintech lenders to use alternative data – such as potential borrowers’ cash flows (derived from their bank account information), education and occupation data – and to 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 office monitored reports of who was applying for and receiving these loans. The San Mateo, Calif., Company says it has made $ 6 billion in unsecured personal loans to date.
“The automobile came to us very naturally,” said Val Gui, Managing Director of Upstart. “It’s a big market, and there are a lot of people who are paying way too much for car 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 a few minutes. In the app, Upstart automatically searches and fills in any information it can find about the borrower’s existing car loan, if one exists. It then presents a few alternative loan offers that the car buyer can choose from.
Paul Gu, co-founder of Upstart, said the company, through its personal loans and new auto loans, lends to people who are traditionally not considered prime credit based on their ratings. credit, but who are in fact solvent.
“Credit score and credit history are barriers for people to get affordable credit,” Gu said. “They do not reflect a person’s real risk.”
When banks use Upstart’s personal loan platform, the company has incorporated its lending philosophy into its model, he said. It will be the same for the car loan platform.
The company did not specify how much it would charge lenders for using the car loan platform, but Gu said the pricing is based on the number of loans issued.
“If we’re not able to help the bank convert a lot of loans, then we’ll share the downsides,” he said.
Many online lenders have struggled during the pandemic. Gu admitted that Upstart was also affected. The company’s payments depreciation rate is 5.8% due to deferrals and hardship claims. But Gu said that figure is a fraction of what others in the industry are reporting.