Learn the Basics of Borrowing and Investing with Peer to Peer Lending

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At 23 years old, Paul Gu has attended Yale, been awarded a $100,000 grant as a Thiel fellow, co-founded Upstart, attracted millions in venture capital money, and is earning a 6-figure salary as Head of Product. Wow – what were you doing at 23?

Surprisingly, Paul found it nearly impossible to get a good rate for a loan. The banks wouldn’t lend, Prosper rejected him, and Lending Club offered him a loan with an interest rate in the high 20s. What gives? Using traditional credit scoring metrics, Paul has less than 3 years of credit history and is deemed high-risk.

Paul and his team at Upstart came to the realization that he is not alone and that there is an entire category of select “thin file” borrowers who have been overlooked by the system. These are recent graduates who have entered into the workforce with very promising career trajectories.

“We’re identifying prime borrowers before anybody else sees them,” said Dave Girouard, co-founder and CEO of Upstart.

In addition to credit and salary data, Upstart uses education-related variables to predict a borrower’s earning potential, employability and their propensity to repay the loan.

“We want to support those who just finished their education and are starting a job,” said Girouard, “In addition to looking at [your credit] and your income, we look at where you went to college, what your area of study was, how you performed academically.”

Since early 2013 Upstart has originated $3.5 million worth of income-sharing agreements to 309 people backed by 2,192 lenders. Upstart has used their intelligence in the income sharing business to formulate their new product that is launching today.

Introducing the Upstart Marketplace

Starting today, Upstart has launched a marketplace much like Lending Club and Prosper to offer three-year standard term loans available in all 50 states. Borrowers can request loans of $5,000 up to $25,000, and interest rates can range from 6.5% up to 20% APR.

Upstart’s new product crosses the boundaries of consumer and student loans, which means borrowers can use the funds for pretty much anything: to pay off credit cards, retire student loans, or pay tuition for a course.

Upstart’s investor marketplace will be available to accredited investors only and will offer fractional ownership in $100 increments. As you can see in the screen shot below, Upstart loans are given a letter grade and interest rate along with a progress chart to monitor funding levels. Investors can view details of each loan, but will not be able to see the identity of the borrowers.


Upstart also levels the field among individual and institutional investors by making all loans available on equal terms. In contrast to Lending Club and Prosper, Girouard said, all investors have access to every published loan since there is only a single pool of loans. Upstart’s platform offers lenders the ability to create filters for loans in which they’re interested. The investor, then, can automatically make a bid for those types of loans as they become available.

“Investors can set up as many rules as they want,” such as setting the maximum amount, risk grade of the loan, or even how the loan is (claimed to be) used, according to Girouard.

Borrower Acquisition Strategy

“We’ll have a steady flow of borrowers,” he continued. Upstart already has partnered with 13 coding bootcamps, which normally aren’t eligible for education loans, in the United States.

Borrowers, once verified and approved, can receive funds within 7 days, and can opt to defer their first payment for 3 or 6 months.

Aside from being able to discover early prime investments, Upstart has also structured itself to bolster loan repayment by not imposing fees for early repayment, and by educating borrowers on their finances and on how to improve their credit.

This education push has already paid off for Upstart’s investments, where they’ve “seen 3,056 unique repayments to backers in 14 months without a single default.”

“We understand that our borrowers are recent graduates, so we’re adding an educational component,” said Girouard.

Upstart is Well Positioned for A Borrower’s Life Cycle

Upstart is using educational data in a new way to bring something unique to market. They are able to expand the prime borrower market by uncovering a large overlooked pocket of borrowers. They are also in a great position to establish themselves early with borrowers who will need credit for many of life’s major purchases like a new car or a new home. While nothing has been announced, we can see how Upstart may be in a position to expand their offerings to other lending categories over time.

Paul Gu will be speaking at LendIt on May 6, and his panel will be available by webcast. We hope that he posts his loan request on Upstart. We will be the first in line to fund him!

Correction: The above post misidentified Paul Gu’s title. He is the Head of Product at Upstart. Also, Paul attended Yale University and has not graduated.


Peer to Peer Lending News Roundup – April 19, 2014

by Peter Renton on April 19, 2014

During the week I share the latest p2p lending news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

The big news of the week was Lending Club’s acquisition of Springstone Financial and there was a lot of coverage on that story. I lead this edition of my weekly roundup with some of the major articling covering this big story.

LendingClub Value Jumps to $3.8 Billion as It Buys Springstone from Businessweek.

Lending Club Raises $115M In Debt And Equity, Buys Financing Company Springstone Financial For $140M from Techcrunch.

Lending Club buys traditional lender to finance private school tuition and medical procedures from San Francisco Business Times.

Direct Lending in Europe – Progress & Opportunity from Orchard - A look at the European p2p lending models and how they differ from the US.

Overview of Red Rock Assets – Social Lending for Mining Projects from Peer & Social Lending – Interesting new entrant in the p2p lending space – who would have thought mining projects could be funded by individual investors?

Peer-to-Peer Lending Club Moves Closer to IPO from Nasdaq (video) – I was interviewed yesterday by Paul Vigne of the Wall Street Journal for their Moneybeat program.

Peer Lending Lures Yield-Hungry Investors from The Street – Lend Academy readers know very well the yields that p2p lending provides and more and more people are seeing it as well.

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LAP12: Alex Tonelli of Funding Circle on Small Business Lending

April 18, 2014

Alex Tonelli is the Founder and Managing Director of Funding Circle USA. He started Endurance Lending Network with Sam Hodges back in 2012, which I profiled here last summer, and this company merged with Funding Circle UK in October last year. This discussion is all about small business lending. In the online space, small business [...]

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Lending Club Makes Their First Acquisition: It’s a Traditional Lender

April 17, 2014

First, let me say this is not an April Fools joke. This announcement from Lending Club today is very big news and it is real. Lending Club has just closed on their first acquisition and it is not an online lender – they are buying a traditional lender called Springstone Financial for $140 million in [...]

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Funding Community Co-Founder Teaches Us the Right Way to Fail

April 16, 2014

Last year at LendIt 2013 we featured a number of P2P lending start-ups in our exhibit area in order to learn about the next new thing.  There was one company in particular that had a great mission and a great story that we were excited to feature.  This company was called Funding Community (we wrote [...]

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New White Paper on the Regulation of Peer to Peer Lending

April 14, 2014

Samuel Hu, an attorney at Chapman & Cutler LLP in New York, has been an occasional contributor here at Lend Academy. He wrote this post on p2p lending regulation a year ago and now he is back to share his updated white paper with us. I chatted with Hu last week when he reached out [...]

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Peer to Peer Lending News Roundup – April 12, 2014

April 12, 2014

During the week I share the latest p2p lending news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here. New Age Lending and the Evolution of Credit from Huffington Post – From the founder of LendingTree a look at the different [...]

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LAP11: Interview with Ron Suber of Prosper

April 10, 2014

I was in San Francisco last month and I sat down with Prosper president, Ron Suber to record this conversation for the next edition of the Lend Academy Podcast. Ron Suber was part of the executive team that took control of Prosper early last year and they have been on a roll since then. As [...]

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Lending Club and Prosper Tax Information for 2014

April 9, 2014

[Disclaimer: I am not an accountant nor am I qualified to provide tax advice. This post merely shares how Lending Club and Prosper are presenting their tax information this year. You should seek professional advice before taking action on any of the ideas presented here.] I know I am late with the tax post this [...]

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SoFi Raises a Huge Series C to Expand Beyond Student Loans

April 7, 2014

[This post is by Jason Jones, one of my new partners at Lend Academy. He has been following SoFi since they launched and believes they are a very important player in this space. - Peter] The name SoFi is interesting, it is short for Social Finance.  When Mike Cagney chose the name, we think it [...]

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