Upstart offers 3-year loans to help recent college grads

Recent college grads and millennials with less-than-stellar credit can now get a loan through Palo Alto startup Upstart to buy a car, continue their education or create a business.

Upstart, a peer-to-peer lending platform that offers an alternative to bank loans, unveiled on Wednesday a new three-year loan aimed at young borrowers who show potential to earn good salaries and pay their bills, but may not have the job experience or investments usually necessary to build good credit. Upstart uses an algorithm to predict a borrower’s earning potential and future success, and based on that, will determine whether the individual qualifies for a loan, how much the loan should be and the repayment requirements.

Upstart launched in 2012 and began offering 10-year loans, but founder Dave Girouard, former president of Google Enterprise, aimed at aspiring entrepreneurs who may be broke at the time but who could quickly earn a lot of money. But, he said, many borrowers were taking out loans to pay for coding bootcamps — a multi-week or multi-month training in computer programming. These bootcamps can cost several thousands of dollars, often out of reach for recent college graduates.

But, Girouard said, the ten-year repayment on a $10,000 or $15,000 loan didn’t seem appropriate, and his team decided to launch the three-year loan. Borrowers who qualify can get loans from $5,000 to $25,000, and interest rates are set at 6.5 percent to 20 percent, depending on the borrower’s circumstances. Similar loans are offered by Lending Club and Prosper, both San Francisco-based peer-to-peer lending companies that are direct competitors of Upstart’s.

Upstart loans come from individual investors and firms who often develop personal relationships with the borrowers. Girouard said borrowers in their 20s with less than six years of credit history are the most underserved by financial institutions, and yet they are less likely to default than borrowers twice their age with debt.

According to a study by the Federal Reserve Bank of Richmond: “Young borrowers are among the least likely to experience a serious credit card default.”

Girouard founded Upstart after leaving Google in 2012, where he oversaw development of the Google Docs products. His own experience leaving college with student loan debt inspired Upstart. He said he graduated college — a bachelor’s at Dartmouth College and Master in Business Administration at the University of Michigan — and immediately took the highest paying job he could find, which was as a consultant, to begin paying down the debt. He said he realized the restrictions the debt placed on his life, and it wasn’t until his loans were paid off that he felt the freedom to choose the career he really wanted.

He says the three-year loans will also help young people build good credit and teach them money management skills.

Since Upstart began lending about 15 months ago, backers have made 2,192 offers totaling $3.5 million to 309 borrowers. Not a single borrower has defaulted on repayment. The loans have been used to start ice cream shops, pay off credit card debt and build mobile apps.

Upstart is backed by Google Ventures, Kleiner Perkins, Khosla Ventures, Founder’s Fund and First Round Capital.

Image from Upstart


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