Peer to peer lending has become a popular alternative to traditional stock and bond investing to diversify your investment portfolio. One of the leading peer lending platforms is Upstart. If you are an investor interested in earning between 5.6% and 9.2% through microloans, this Upstart review can help you determine if investing is a good option for this somewhat different peer lending platform.
Upstart is a relatively new peer lending platform that began originating loans in 2014. In that short time period, over $1 billion in loans have been originated. To set themselves apart from the crowd, Upstart has a unique underwriting process that focuses on highly-qualified young adults with an academic degree, their academic standing, and potential career growth. Most peer lending platforms might only consider your FICO score and type of employment when considering a borrower’s loan application.
While Upstart is still relatively young, the organization was founded by three former Google employees. Today, Upstart holds the claim of being “the first lending platform to leverage artificial intelligence and machine learning” to help with the credit approval process.
To invest at Upstart, you need to have a relatively high net worth or annual salary. You must might one of the two requirements listed below:
- Have a household net worth of at least $1 million, not including your house
- Earned at least $200,000 per year for the two most recent years ($300,000 for joint applicants)
The good news is that you can live in any state. Other peer-to-peer platforms prohibit residents of certain states from becoming an investor.
Upstart will allow you to open a taxable or tax-advantaged IRA account. The self-directed IRA can be, at your discretion, a Traditional IRA or Roth IRA.
They even support trusts, if you are planning to leave behind a legacy.
All you need to open an account is $100. Each new investment also requires a minimum investment of $100.
This is a little higher than the other peer lending platforms that might only require $25 per note, but, $100 is still a reasonable amount that makes it easy to diversify with a small account balance. For example, investing $1000 at $100 per note means you can invest in 10 different loans.
Account fees are also very reasonable with Upstart. You will only pay a 0.5% annual management fee. There are no fees if a loan is discharged or an outside agency is hired to collect payments from delinquent borrowers. The origination fee paid by the borrower helps offset these fees which means the administrative savigns can be passed onto you, the investor.
|Accounts Supported||Taxable, IRA, and Trust|
|Account Management Fees||0.5% annually|
|Investment Expense Fees||None|
|Asset Allocation||Invest in personal loans with AAA to E credit rating|
|Auto Rebalancing||Yes (optional)|
|Customer Support||Phone: M-F 6A-5P PT, Email-24/7|
Upstart assigns a borrower one of seven different credit ratings ranging from AAA to E. A rating of AAA is the best rating. All applicants are required to have a minimum FICO score of 620. And, all loans only have a three-year (36 months) or five-year (60 months) repayment term. Borrowers can only borrow up to $50,000.
Upstart likes to say they lend to “future Prime borrowers” that haven’t had an opportunity to establish a solid credit history because (a) they are currently enrolled in college or (b) recently graduated from school.
The average Upstart borrower will exhibit the three following traits:
- FICO score of 688
- Annual income of $88,941
- College graduate (86.3%)
You can expect to lend your money to a young, working professional with a high income for their age bracket. Except for a few small pockets of the U.S., an annual salary of $88,941 is a very comfortable income. Most loans will be for refinancing credit card debt.
In all, only 4.3% of all Upstart loans have been charged off and 91% are current. Despite being an unsecured loan, you have 90%+ chance of receiving your monthly payment on schedule. Your odds of having the loan paid in full are much higher with Upstart than some of the other platforms.
With a diversified Upstart portfolio, you can expect an average investment return of 6.6%. But, the individual rate of return will vary from 3.79% to 15.57% depending on the credit rating of each individual note after charge-offs and late payments have been accounted for. This average investment rate of return is consistent with the other peer-to-peer marketplaces.
Upstart will also automate your portfolio and spread your account balance across the various loan ratings to help you consistently earn an average return of in the mid-6% range without having an overly risky portfolio. Automatic investing is free and can be a great option if you want a low-maintenance passive income stream or might invest too conservatively or aggressively if you are a DIY investor.
|Fees||0.5% on all assets||
||1% annually of borrowed principal balance|
|Asset Allocation||Invest in personal loans with a credit rating of AAA to E||Invest in 30 credit ratings from A1 and G5 for multiple loan types||Invest in 7 different credit ratings for multiple loan types|
Here are a few reasons that help set Prosper apart from the competition:
- Relatively low charge-off rate
- Open to members of all 50 states
- Automatic investing
- Investors must have a high income or net worth
- Only began lending in 2014
Upstart can be a good option if you can meet the high net worth or requirements to become an investor. If so, most loans will be for young investors that typically have a good education background and firm career prospects as well. The lower fees also make it a good option as well. By investing with Upstart, you should have no problem earning a positive return on most investments.