Looking for a way to pay for a new car, buy that fancy new computer, or escape on a tropical getaway without saving up first? There’s a loan company eagerly waiting to front you the cost—but it’ll cost you. It’s called Upstart, and this digital lending service is on a mission to ramp up the number of people in debt. (You read that right!) So, I’m glad you’re here, because that means you’re doing your research before signing up to become Upstart’s newest vict . . . uhh, I mean customer.
What Is Upstart?
All right, what is Upstart exactly? It’s a leading artificial intelligence (AI) moneylending platform founded by ex-Google staffers that allows you to borrow unsecured, fixed-rate personal loans. In other words, it’s an online platform that partners with banks and uses an algorithm to approve people for loans—which is supposed to be faster and easier than working with actual human beings. On their website, Upstart says their mission is to “enable effortless credit based on true risk” because, as they claim, “credit really matters.” Yikes. (That’s why we’re here to help you avoid debt and learn better options to save up for what you want.)
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Now, if you’ve ever seriously asked yourself where you can get a stack of cash without interacting with another human (you know, like at a job), Upstart is exactly the kind of company that could suck you in. They’re happy to give out loans up to $50,000 after just a few clicks. And you never even have to speak to a person. If it sounds too good to be true, that’s because it is. While their application process is super simple, Upstart’s loans are still personal debt.
Guys, there are so many red flags flying here, and we’re going to dive into them in just a minute. First, I want to remind you: The borrower is slave to the lender. And even though Upstart uses a slick platform claiming to “help” people who are in a pinch or looking to spend to their heart’s content, taking out a loan basically handcuffs you to this AI robot—and a huge pile of debt.
What Makes Upstart Different From Other Lenders?
Listen, I love technology and convenience more than most humans (but probably less than robots?). But when it comes to trusting your financial future to an AI platform, I’m skeptical. (Ever seen 2001: A Space Odyssey? Just say no to HAL, okay? Just say no.)
Now, Upstart is a legitimate lending company. It has an A+ rating from the Better Business Bureau and a personal rating of 4.3 stars.1,2 But these ratings don’t mean Upstart is looking out for your best interest. They want the number of people with debt to go up, not down.
You might be thinking, But George, if a loan is a loan, what makes Upstart different from other lending companies? I’m so glad you asked. There are a few things Upstart does differently than traditional lenders. Let’s take a look.
- On their website, Upstart says they use “non-conventional variables at scale to provide superior loan performance and improve consumers’ access to credit.” That’s fancy talk for using mystery data to sign up more qualifying people for debt with lower risk and cost to the banks. Sounds great for the banks—but it’s a terrible deal for you.
- Upstart doesn’t use FICO scores. Traditional lending companies use FICO scores to decide if someone can borrow money—and how much—based on their borrowing history. Upstart looks at more personal data, like the school someone went to, what they studied, and their employment history before disqualifying or approving them for a loan.
- Since Upstart relies on artificial intelligence (and not actual people) to approve loans, their website says that 74% of their loans were fully automated in March of 2021. That means you’d never talk to a person from the time you request a loan to the moment the money hits your bank account. Creepy? Yes!
- Upstart wants to improve the process so more people can take out more debt. According to an Upstart study, as of 2019, 80% of Americans had never defaulted on a loan, but only 48% of Americans had access to prime credit. Upstart’s goal is to make it quicker and easier for that 80% of people to borrow more money.
- Upstart wants to make AI mainstream using their fancy technology. As if self-driving cars, talking home speakers and language translation tools aren’t futuristic enough, Upstart wants to make your debt robotic too. I was cool with those things up until the robot debt part.
Stay with me here: I’m all for technological advancement. But there ain’t no chance I’m putting my financial future (especially one that includes debt!) in the hands of an AI platform. Just like a frustrating vending machine that eats your dollar bill, companies like Upstart want to eat a whole lot of your future dollars.
How Do Upstart Loans Work?
For all the new and unusual ways Upstart calculates loans, the process for the customer is pretty simple. Upstart uses a three-part loan approval and delivery process for new and returning customers:
- New customers visit the Upstart website and click a button to get a new loan rate. They’ll answer a few questions, like how much money they’d like to borrow and what the loan is for.
- Then, the user will verify personal information, like home address, phone number, Social Security number and bank account information.
- Finally, the algorithm works its magic. If Upstart approves the application, the loan will deposit into the user’s bank account within one to three business days.
A few notes: Applicants need a minimum credit score of 300 before applying for a new loan (and not everyone will be approved, even if they have a higher credit score). Approved loans can range from $1,000 to $50,000 for expenses like paying off credit cards, consolidating debt, covering bills or rent, making a big purchase, or paying medical bills, wedding costs, taxes and more.
Why You Should Stay Away From Upstart Loans?
According to the Ramsey Solutions State of Debt research study, nearly half of Americans (46%) say debt creates stress and makes them anxious. And no surprise here, but the higher the debt, the more anxiety people experience. So, when you take out a loan from Upstart, you can bet your bottom dollar there’ll be emotional strings attached to that “cha-ching.” Not to mention, you’re responsible for loan fees, late charges and interest—and those add up fast. Are you sure you want to sign up for all that?
For example, according to Upstart, an average five-year loan they offer to lenders will have an annual percentage rate (APR) of 24.74%. APR is decided based on credit, income and other data in the loan application. So, you could expect the total cost of a $10,000 loan to be way over $15,000. And if any of those 60 monthly payments are late, there’s a fee of 5% or a $15 minimum—whichever is greater. (Yep, you’re on the hook for the highest late fee.)
Here’s the thing, guys: No matter how helpful they may seem, personal lending companies like Upstart want to trap you with debt so they can make money. And when you have loan payments, you can’t use that money for other things, like paying bills, saving for emergencies, building wealth for retirement, or taking a dream vacation. But you can avoid this trap.
The Smart Way to Start Saving Up
It’s easy to have an Amazon Prime mindset these days and expect everything we want to appear instantly. The same goes for money—loans can look like an easy solution to our troubles. But I want you to remember that building smart money habits takes time. Taking out a loan and paying thousands of dollars in interest for years isn’t the way to financial freedom.
The easiest way to take control of your money so you can stay out of debt is to tell it where to go. And that means budgeting and saving up for the things you want (instead of borrowing money from hungry lenders). Try a free trial of the EveryDollar budgeting app so you can plan, spend and track your money with ease. This is the same app I use to tell my money where to go and create a game plan for my paychecks. When you use it, you’ll feel like you got a raise and like you’re finally in control of your money. Remember: Money doesn’t make decisions—you do! So, make good decisions. And start by avoiding lenders like Upstart.