Upstart Debt Consolidation Loan Review

Upstart is an online loan marketplace that uses artificial intelligence to assess a creditor’s risk, a big departure from the traditional credit score model. The company says AI makes affordable loans accessible to those who may not otherwise qualify, and also makes online approval “frictionless.”

Aside from the standard qualifications of credit score and income, the Upstart AI model looks at 1,500 variables based on data from 4.4 million repaid loans, as well as loans that are currently being paid across the industry. Factors include, but aren’t limited to, a borrower’s finances, education, employment information and credit record.

The premise behind the AI model is that looking at credit score, credit history and income alone leaves out a lot of borrowers who are a good risk. An Upstart study estimated four out of five Americans have never defaulted on a credit product, but less than half have access to prime credit.

As of 2023, Upstart said it has a 43% higher approval rate than lenders who base approval largely on credit score, and its annual percentage rates (APR) average 43% lower. Nearly a third of Upstarts loans – 28.9% – go to borrowers in low to moderate-income communities.

Upstart was founded in 2012 by a group of former Google employees, and it operates as a lending marketplace, giving borrowers who check their rate online a variety of offers. While Upstart partners with nearly 100 banks and credit unions, the majority of the loans are Upstart loans, with more than half funded by Cross River Bank in New Jersey.

Upstart has 2.7 million customers and has originated $33 billion in loans from 99 banks, with 84% approved through a totally automated process, meaning there is no human involvement. Its AI process is constantly evolving, including 23 updates in the first quarter of 2023.

As with most online lenders, Upstart has an online application and approved borrowers can get their money as soon as the next business day. AI makes the approval process smoother, with 75% of those who pick an offer getting approval without having to provide any more documentation.

Also, a quick rate check means a soft credit inquiry, but accepting an offer means a hard credit pull that may have a brief negative impact on credit score.

Upstart offers $1,000-$50,000 loans for terms of 36 or 60 months and APRs of 4.64%-35.99%. There is an origination fee of up to 12% for most of the loans.

Let’s take a closer look at Upstart debt consolidation loans.

Snapshot:

• Type of Debt Relief – Debt consolidation loan, credit card consolidation loan
• Eligibility and Requirements – No minimum credit score; $12,000 minimum income; debt-to-income ratio maximum 45%-50% in most states; no bankruptcy in previous 12 months
• Rates and Fees – 4.64%-35.99% APR, origination fee up to 12%; $15 late fee; $15 insufficient fund fee
• Credit score impact – Minimal to check rates; hard inquiry if you accept offer
• Consumer Reviews – Mixed

How Upstart Debt Consolidation Loans Work

Upstart offers both debt consolidation loans as well as loans solely for credit card consolidation. The requirements, terms, and amounts are the same, but your offers may be slightly different depending on your debt load and which option you choose.

A debt consolidation loan is a personal loan that aims to combine debt payments, including credit cards, into one fixed monthly payment, that is easier and saves money. A credit card consolidation loan is used to pay off high-interest credit cards. It helps save money both monthly and overall, through lower interest and fixed payments, rather than revolving ones.

Upstart loans range from $1,000-$50,000 for terms of 36 or 60 months. Offers are generated by AI based on information you enter to check your rate.

Despite the AI, credit score, credit history and income do matter, but they’re just one part of the calculation. Your occupation, employer, educational background (including your degree and areas of study), and more than 1,500 other factors, all play a part. There isn’t a human digging through all this, but a computer that assesses risk based on your information and how it compares to that of millions of loans that have been paid or are being paid in the U.S.

Checking your rate triggers a soft credit inquiry that won’t affect your credit score. Accepting an offer means a hard credit inquiry that could have a brief negative impact.

Approval is instant with no more documentation required for 75% of those who accept an offer. And even if more information is required, about 84% of Upstart’s loans are approved using only automation, with no human involvement. If you accept an offer, you may be asked for more verification of income, employment or education, or if the AI flags you for some reason.

Several states have minimum loan amounts and rules about APRs, which can also affect your offers.

The higher credit risk you are, the fewer offers you’ll get, and the higher the APR and origination fee will be. Some applicants won’t get offers for the full amount they requested if AI doesn’t assess them as a good credit risk.

In 2022, Upstart had a 14% loan conversation rate, down from 24% in 2021. This means that 14% of those who got offers received loans. There are a lot of reasons for a low number of conversions: borrowers are shopping around or testing the waters, they don’t like their offers, or they accept an offer but don’t get final approval. Upstart in its 2022 annual report said that inflation and the increase in interest rates meant fewer borrowers were accepting offers.

What Upstart Artificial Intelligence Tells Lenders About You

Upstart’s ever-evolving AI model isn’t just for your benefit, but also provides information to lenders that has an impact on approval and cost of your loan.

The AI information for lenders:

• “Optimizes” assignment of origination fees (determines how much your origination fee will be).
• Quantifies the potential a borrower is misrepresenting income (this could result in denial or require you to provide more documentation).
• Identifies consumers likely to qualify for and need a loan (this may mean approval, or a lot of emails from Upstart telling you to are prequalified).
• Identifies consumers likely to take out multiple loans in a short period of time (this could mean denial or high APR and origination fees).
• Quantifies the likelihood a consumer will pay off the loan early (while there is no pre-payment fee, early payoffs cost lenders money, so this could lead to a higher rate).
• Quantifies the risk that an applicant is misrepresenting their identity (this could lead to denial or require you to upload more documentation).
• Quantifies the likelihood of default (this could lead to loan denial).

How to Apply for an Upstart Debt Consolidation Loan

To apply for an Upstart debt consolidation or credit card consolidation loan, visit the company’s website and click on “Check Your Rate.”

You’ll provide:

• Desired loan amount
• Loan purpose
• Personal information (name, address, Social Security number)
• Education
• Income and savings

If you qualify, you’ll get offers that include APR, loan term (36 or 60 months), monthly payment, total loan amount, the monetary (not percentage) origination fee amount, and how much you will get with the origination fee deducted.

The higher credit risk you are, the higher the APR and fees, and fewer offers you will get. You also may not get an offer for the amount you requested.

If you select an offer, chances are you’ll be approved immediately without having to upload any documents – because of its AI process, 75% of Upstart loans in 2022 were instantly approved. If you’re part of the other 25%, you may be asked for more documentation of income, employment, education, or bank accounts.

Once you’ve accepted an offer, the money will be in your bank account as early as the next business day.

Whether the loan is debt consolidation or credit card consolidation, it’s up to you to pay your creditors once the money is in your account.

Upstart Debt Consolidation Loan Eligibility and Requirements

Because Upstart is a lending marketplace, meaning that offers may come from several banks and credit unions, eligibility and requirements aren’t set in stone. But even with Upstart’s AI process, the better your credit, the more likely you will be to be approved.

Minimum financial and credit requirements are:

• Must be a U.S. resident, at least 18 years old with a Social Security number (Upstart loans are not available to Iowa and West Virginia residents).
• Have a valid email and U.S. bank account.
• Earn a minimum of $12,000 annually.
• Have a credit history with at least one of the consumer credit reporting agencies (Transunion, Experian, Equifax).
• No significant drop in credit score or added debt obligations between approval and when the loan is funded.
• Debt-to-income ratio, not including rent or mortgage, maximum 45% for Connecticut, Maryland, New York, Vermont residents; maximum 50% in all other states.
• No bankruptcies in the last 12 months.
• No unpaid or underway civil judgments or tax liens in the last 12 months.
• No current delinquent accounts on credit report.
• Fewer than six inquiries on your credit report in the last 6 months (exceptions are student loans, vehicle loans and mortgages).

Upstart Debt Consolidation Loan Rates and Fees

Upstart debt consolidation loans have 4.64%-35.99% APRs There is also an origination fee as high as 12%. Origination fees are “service fees” charged by lenders. The worse your credit risk, the higher it will be. As with most online lenders, the same goes for your APR. Upstart’s AI plays into how high an APR or origination fee is, but there are so many factors, it may not be clear what sparked a high fee.

The origination fee is deducted from the loan amount, but you will still make payments and pay APR on the amount you borrowed, not the amount you receive after the fee is deducted.

For instance, if you are approved for a $10,000 loan with a 10% ($1,000) origination fee, you will receive $9,000. You will still make monthly payments and pay APR on a $10,000 loan.

Your offers will clearly show the origination fee, the amount you will receive and what you will pay monthly, so you can decide whether it’s worth it to accept the offer without going farther into the process.

Upstart also charges a late payment fee of $15 or 5% of the past-due amount, whichever is greater. Set up automatic payments and avoid this fee.

There is also a $15 fee if the money isn’t in your account when the payment hits. Your bank may charge an additional fee.

There are no penalties for paying your loan off early, but if the AI detects you as someone who’s likely to do this, your APR or origination fee may be higher, since lenders make less money when a loan is paid off early.

Pros and Cons of Upstart Debt Consolidation Loan

Upstart’s unique AI qualification model is an opportunity for consumers who may be shut out of loans with more traditional standards. It may also mean someone with a good credit score is left scratching their head about an unfavorable offer.

Rates and origination fees can be high, so the loans may be too expensive for some borrowers. Fortunately, you can see exactly how much the loan will cost you before accepting an offer.

Pros of Upstart

• AI model means applicants with a low credit score, or little credit history may qualify.
• Loans as low as $1,000.
• Approval upon accepting offer for most applicants.
• Offers include clear information on origination fee.

Cons of Upstart

• AI process may mean unfavorable offer even with good credit.
• APR as high as 35.99%.
• Origination fees as high as 12%.
• Origination fee is deducted from approved loan amount.

Is an Upstart Debt Consolidation Loan Right for Me?

If your credit history and income are shutting you out of getting a debt consolidation loan, Upstart may be a good option. Nearly a third of its loans go to people in low to moderate-income communities, and it prides itself on making loans affordable and approving loans at a higher rate than other lenders.

If you are approved, be sure to take a good look at your offers and do the math to make sure the rate and monthly payment will work with your budget.

If your debt load is mostly high-interest credit cards, a fixed monthly payment for a set period will likely save you more money than paying revolving credit card debt, even if the loan APR is high. If you are making minimum payments, check your credit card statements where it shows how much the card will cost and how long it will take to pay off if all you do is make minimum payments (and, of course, don’t use the card). Do the math and figure out which will cost you less, the loan or the credit cards? One advantage of a loan is that if you pay off the cards and close the accounts, you’re not going to rack up more debt the way you might with a credit card.

If your unsecured debt is for medical bills or personal loans with low interest, make sure you’re not grabbing at something with high interest that’s going to cost you more in the long run.

Borrowers with excellent credit may find better offers with lenders who don’t have origination fees and gauge credit worthiness (and therefore APR) by credit score and history, without the AI factor.

Upstart Reputation and Consumer Reviews

Upstart started in 2017 and was part of the Consumer Financial Protection Bureau’s pilot program assessing fintech companies. Upstart was issued a “no action” letter, which means it was free from regulatory oversight as the CFPB figured out how such companies would work with consumers.

In June 2022, the agency and Upstart agreed to terminate the letter because Upstart’s constant upgrades to its AI meant it couldn’t adhere to its end of the agreement regarding making changes.

Since then, there have been no official CFPB regulatory concerns about Upstart.

However, in 2020, a group of U.S. senators sent Upstart a letter with concerns about discriminatory lending regarding the AI process, particularly the education variables. Part of the concern is that people who are already left out of lending because of lack of access to credit, race, and gender, also are more likely to not have a high school or college degree.

This led to Upstart, the NAACP Legal Defense and Education Fund and the Student Borrower Protection Center agreeing that a neutral third party would review the company’s model, not only for education variables, but for others. The company, Relman, performed periodic assessments over two years and made suggestions that prompted Upstart to tweak its AI model.

Upstart has an A+ rating with the Better Business Bureau, which means it’s excellent at handling customer services and issues.

Positive reviews on several online sites focus on how easy it is to apply, satisfaction with the variety of offers and how fast the money was in their account. Positive reviewers who dealt with customer service gave it high marks, saying representatives were friendly and helpful.

Negative reviewers are unhappy with the high rates they were offered, or about not being offered the full amount they requested. Income and education verification issues also were targets of reviewer wrath, particularly when, after jumping through those hoops, they still weren’t approved for a loan.

Alternatives to Upstart Debt Consolidation

Upstart won’t work for everyone. Its AI-powered lending model may expand access to loans, but that won’t matter if the rates are too high, or if the terms are too narrow. Whether you are looking to get a loan with bad credit, or you have good credit, but Upstart’s offers don’t fit your needs, shop around.

Some other online lenders to consider are:

• Discover doesn’t go full AI like Upstart but does take a holistic approach to applications that incudes finances and income as well as credit history. APRs are lower than Upstart’s, at 6.99%-24.99%; loan amounts are $2,500-$40,000; repayment terms are 36-84 months. There is a $25,000 minimum income requirement.
• LightStream is for borrowers who have good credit and want some appreciation for it. Borrowers with a credit score of 680 or higher can get debt consolidation loans of up to $100,000. Assets like savings or a retirement account will work in your favor. APR is capped at 20.49%. There is no prequalification option, so applying means a hard credit inquiry.
• Upgrade is another fintech company that matches borrowers with loan offers. It works with small banks and credit unions to keep rates manageable for borrowers with good credit. As with Upstart, applicants get multiple offers with a variety of terms and rates. Debt consolidation loans of $1,000-$50,000 have 24–84-month terms with 8.49%-35.99% APRs. Also similar to Upstart, applicants with poor to bad credit can expect to get fewer offers, and the ones they do get will likely have high APRs.

Alternatives to a Debt Consolidation Loan

If you are looking for debt relief, particularly if you have trouble making minimum monthly payments, consider a solution that doesn’t involve borrowing money. This is particularly important if your credit is bad, and any loan will mean high interest rates and origination fees.

Start your debt relief journey with credit counseling. A consultation with a counselor at a nonprofit credit counseling agency is free. They are required by law to offer advice that’s in your best interest, rather than pitch a product. They’ll review your finances, help you create a budget and make recommendations on how to reduce or eliminate debt.

They may suggest a debt management plan. This isn’t a loan, but a program offered by nonprofit credit counseling agencies that reduces the interest rate on credit cards and other high-interest debt, lowering your monthly bill and how much you’ll pay overall.

You pay a fixed monthly amount to the credit counseling agency, and they pay off your unsecured debt in 3-5 years.

Your credit score is not a factor when enrolling in a debt management plan. If a high-interest loan is your only option, it’s probably time to consider this route instead.