Peer to postgrad lending – will Upstart work?

Now that I’ve filled my initial Prosper portfolio with loans (I’ll write later how my account fares, once a few payments have come in – or not), I’m looking around at the other peer to peer offerings.  One site in particular caught my interest – Upstart.

The idea of Upstart sounds both noble and intriguing.  In brief:

  • Recent university grads get a raw deal from the credit agencies, and hence mainstream lenders.  Their short credit histories mean low scores, which translate to low credit availability.
  • Despite the low credit scores, many of these graduates are probably good risks.  A prime example, in my mind, would be a newly-degreed computer programmer headed to Silicon Valley.  His big paycheque to come can’t buy him furniture for his new (ludicrously expensive) apartment, so he needs upfront cash.  Instead of the guy putting his new sofa on the credit card @ 20% interest, there are probably folks (like me) willing to lend to him at something more like 10%.
  • Upstart’s value-add comes from credit scoring the intangibles – such as degree, test scores, career path.  It gets those Silicon Valley credentials into the lending conversation.

So why not sign up as an investor today?  Ah, conservatism.  Unlike Prosper, Upstart’s history as a business is too short to give any indication whether their credit scoring techniques are providing value.  At a click I can see how Prosper loans are performing, whereas Upstart only provides ‘modelled returns’; the latter are guilty until proven innocent, in my mind.  Even the modelled returns look a bit anaemic compared with the realised returns for Prosper…hmm.

Anyway, I’ll keep an eye on Upstart going forward.  It reminds me a bit about a discussion I had with a professor I had at University: he offered me a large upfront payment (I think it was around $100,000) in exchange for ‘equity’ in my future earnings (I think he wanted around 5%).  This isn’t quite the same thing, but maybe Upstart can add convertible loans to the platform?

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