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Peer-to-peer lender Upstart is aiming to identify young but high-quality borrowers by integrating applicants' grades, alma mater and even their SAT scores into its underwriting decisions. Banks could learn from this model, even though it may have shortcomings.
July 8 -
The peer-to-peer lender, which has both threatened banks' traditional businesses and cultivated Wall Street ties, is now selling its loans to community banks and working with them to offer personal loans as a counter to big banks' dominance in credit cards.
December 11 -
Though still a microscopic part of the estimated $11 trillion consumer lending market, peer-to-peer lending is going to matter in a big way sooner than you think, say those familiar with the sector.
February 25
Some peer-to-peer lenders not only differ in the ways they evaluate prospective borrowers they can also diverge in how they tell a story.
The creators of P-to-P lender Upstart recently
Gu's experience showed that young, responsible borrowers often lack access to affordable loans because of their short credit histories, Girouard says.
But Lending Club's records show the company actually offered Gu a better deal, according to Scott Sanborn, its chief operating and marketing officer.
"We'd love [Gu's] help in locating the offer information he shared with you, as the only profile we see in our system shows a significantly lower interest rate than what he relayed to you," Sanborn wrote in an email Tuesday. The company declined to share the exact interest rate figure, citing privacy concerns.
That said, Sanborn acknowledges that young people with thin credit files often do have trouble getting loans through traditional underwriting models.
"We're glad we were able to make Paul an offer," he wrote. "For young people who are new to credit it can be a challenge within the traditional banking system, as limited experience with credit is typically seen as a risk factor, even for those with a high FICO [score]."
But there are additional reasons why Gu may have been stymied in his hunt for credit, according to Sanborn.
"It's also worth noting that if [Gu] applied for a loan at several locations, he could inadvertently have negatively affected his ability to get approved and the price he'd be paying for his loan," Sanborn wrote.
"While checking your rate at Lending Club does not impact your credit... many institutions will place a 'hard inquiry' on your credit file when you apply. Several of these inquiries within a short time period would commonly be seen as an indicator of risk that could negatively influence an application."