Upstart vs Payoff: Best Lending Club Alternatives? - Financial Analyst Insider
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Upstart vs Payoff: Best Lending Club Alternatives?

Lending Club is probably one of the best known peer to peer lending companies in the country.  Since its founding in 2006, Lending Club’s innovative lending platform facilitated over $34 billion of loan originations to consumers.

However, since 2007, multiple new competitors have entered the market offering consumers additional options with more competitive interest rates.  This article highlights the best alternatives to Lending Club for online personal loans.

Online Personal Loan Market

Lending Club disrupted the traditional personal loan market by creating an online platform that matched borrowers with investors.  The objective was to create a more efficient and lower cost lending platform than what was traditionally available through financial institutions. In 2018, Lending Club originated nearly $10.9 billion of online personal loans to borrowers through its platform.

Benefits to Consumers

Historically traditional financial institutions provided unsecured personal loans for consumers.  The approval process was typically slow and required significant documentation.

In comparison, the online personal loan market offers the following benefits:

  • Fast and easy to use online approval process which typically takes just 1 day for final approval.
  • Online lending platforms have lower fixed costs than brick and mortar financial institutions which can translate into lower interest rates and less origination fees.
  • Ability for consumers to compare multiple online options more quickly and efficiently.

Lending Club Competitors and Alternatives

Lending Club provides unsecured personal loans that can be used for credit card refinancing, education, healthcare, auto refinancing, and for small business.  Lending Club also focuses on prime borrowers with the following minimum credit requirements:

  • Minimum 660 FICO score.
  • 36 months of credit history.
  • Debt to income ratio below 40%.

Because of the success of Lending Club, new competitors have entered the online personal loan market with lending platforms that are designed to appeal to different segments of the personal loan market.  Because these new competitors focus on different market segments, they can sometimes offer more competitive terms and rates.

That means it makes sense for consumers to compare multiple options before selecting a personal loan option.

Upgrade

Upgrade was founded in 2016 as an online personal lending platform that combines competitive interest rates with free credit monitoring and financial education.  Consumers have the ability to select fixed rate personal loans or fixed rate personal credit lines.

The fixed rate personal credit lines represent a more flexible revolving credit option that is typically not available from other online personal lenders.

Notable benefits include:

  • Ability to check your rate online within a few minutes.
  • Funding of up to $50,000 with tenors ranging from 36 months to 60 months.
  • No prepayment fees.
  • Receive funds within 1 day following credit approval.
  • Free credit score monitoring with weekly updates.
  • Mobile phone app for Apple and Android platforms.

To be eligible for a loan from upgrade, you’ll need to meet the following requirements:

  • Be able to provide documentation verifying your income and identity.
  • Not be a resident of Connecticut, Colorado, Iowa, Maryland, Vermont, or West Virginia.
  • Be at least 18 years of age.

You can check potential rates on the Upgrade website without negatively impacting your credit score.  If you move forward with an offer, that will result in a credit inquiry on your credit score.  For information about credit inquiries, you can read our guide about how to improve your credit score.

Upgrade has no prepayment fee, which means you can pay back your loan whenever it is convenient for you without incurring additional costs. Additionally, the payment dates are flexible so you can move them to be more conveniently placed within the month.

They do charge a 1.5-6% origination fee depending on your credit score and loan terms, and charge a $10 fee for a bounced check, but otherwise you don’t have to deal with any surprise fees.

Loans range from $1,000 to $50,000, though some states have a higher minimum loan value, and will be sent directly to the applicants’ account within a day of approval.

Payoff

Payoff operates a peer to peer lending model similar to Lending Club.  Consumers benefit from more competitive loan terms with the financing provided directly from investors.

Payoff gives you a method to move all of your credit card debt into a single consolidated loan with a fixed rate payment. They essentially will give you a new loan to pay off all your credit card debt. If you have multiple credit cards with varied interest rates, this can be a great way to simplify your payment plan and lower your monthly payment obligation.

Payoff uses a soft credit check to assess eligibility – that is, applying won’t affect your credit. They offer loans ranging from $5,000 through $35,000, with an average loan size of $18,000 according to the company. The terms vary from two to five year repayment periods (though you can pay them off faster), and they’ll also let you defer, skip or extend payments as necessary.

Benefits & Approval Requirements

The Payoff platform was designed utilizing gamification, behavioral psychology, social media, and online tracking tools to help people pay down their debt.  Consumers receive personalized support and recommendations and services like live online customer support chat and a free FICO score monthly.

Minimum approval requirements include:

  • You’ll need to be able to document that your debt to income ratio is less than 50%.
  • Minimum credit score of 640, with at least two years of history.
  • At least two open lines of credit that you’ve been making payments on in time.
  • You can’t have any payments owed on other credit debts for greater than 90 days.
  • The service is not available in Massachusetts, Mississippi, Nebraska, Nevada or West Virginia.

Interest rates vary pretty widely depending on several factors – according to the company site, they typically range between 5.99% and 24.99% APR. There’s also a platform fee that covers opening and closing costs.

If you don’t qualify for one of their loans, Payoff also has a secondary service, called Lift, that offers articles and budgeting tools for free to the public that can help you boost your credit and learn tools to get out of debt.

Upstart

Upstart is known for revamping their application process to better assess risk compared to the standard purely FICO-based models.

Founded by ex-Google employees and programmers, this company prides itself on its higher than average loan-payback rate. They mainly offer unsecured personal loans. As such, people who are not eligible or are denied by other lenders may have better luck with Upstart, since Upstart will take into account more aspects of a person’s life than just credit history.

Approval Details

Because Upgrade offers more flexible approval requirements, they do have some additional eligibility requirements. Keep in mind, people who pass these initial restrictions have a relatively high chance of receiving a loan. Notable requirements are included below:

  • Be a U.S. Citizen or permanent resident of the U.S., and not residing in Iowa or West Virginia.
  • 18 years old (19 in Alaska/Nebraska).
  • Provide a valid email.
  • Reliable source of regular income.
  • Have an account with a U.S. bank.
  • Minimum FICO/Vantage score of 620.
    • They will accept people with insufficient history/no score to their name.
  • Fewer than 6 inquiries on your credit report in the last 6 months, not including any inquiries related to student loans, vehicle loans, or mortgages.
  • Pass a general inspection of past debt history.
  • Not have a principal outstanding debt of over $50,000 at the time the loan begins.

Loan Terms

Available loan amounts range from $1,000 to $50,000.  Checking your rate on Upstart will not effect your credit score.  If you decide to move forward with an application, Upstart will complete a hard credit check to verify the information on your application which will result in a credit inquiry on your credit report.

Once approved, applicants receive their loan after one business day, or four if it is a student loan. Like other options, there is no prepayment fee and a small origination fee. Upstart provides 3 and 5 year tenor options. The loan APR ranges between 7.69% and 35.99%.

Lending Club

Lending Club’s goal is to expand financial opportunity for the average person. Though personal loans are one of their largest markets, they also provide financing in other sectors, including patient assistance and automotive refinancing.

Lending Club has a lower borrowing limit than Upgrade or Upstart at only $40,000 and requires a higher minimum FICO score of 660.  They work to make their website extremely accessible and specialize somewhat in loans designed to simplify/consolidate debt or to refinance other loans.

To be eligible, applicants must meet the following requirements:

  • Be a U.S. citizen or permanent resident, or living in the U.S. on a valid, long-term visa.
  • Be at least 18 years old.
  • Hold a verifiable bank account.
  • Not live in Guam, Iowa, or Puerto Rico.

The lowest APRs typically go to people who have high credit scores, have low outstanding debt compared with their regular income, and have a strong history of financial reliability. Loans are approved within a few days, and can be cancelled up to five days after they have been issued.

Loans are available for 3 or 5 year terms with monthly repayment requirements.

The APR ranges from 7.99% to 35.89%, with an additional 1% to 6% origination fee at the start of the loan, but there’s no application fee.

Just like Upgrade, there is no prepayment fee at Lending Club. Both fixed and variable rate loans are available, depending on the needs of the applicant. Loan values range from $1,000 to $40,000.

How Can I Maximize My Chances of Being Approved?

When you get a personal loan, the company offering your money is essentially making a bet on you – in order to make money from your interest payments, you have to be able to pay back the loan on time.

This is why they care about data like your income, how much debt you already have, and your credit history.

You can maximize your chances of approval by avoiding unnecessary credit checks, choosing the right company based on your needs, asking for only as much money as you need, and minimizing the amount of debt you take on.

The companies on this list vary in terms of the minimum credit scores they require, and some will consider other information about you, like the amount of cash you have on hand, your occupation, or your educational background.

If you have ok credit but you’re on the edge, or still have issues getting approved, it’s also often possible to have a cosigner take on some of the risk of your loan; make sure the person you ask to do this fully understands their responsibility and risks before they agree to do this for you.

Is a Personal Loan the Right Choice?

It is worth noting that personal loans aren’t the best choice for everyone – for example, if you have a good credit score and only need a small amount of cash, a personal credit card might offer better financing options, as long as if you can pay it off quickly. If your goal is to consolidate credit card debt, a balance transfer may be more cost effective than a loan.

On the other hand, regardless of which service used, personal loans offer consistency and reliability when it comes to interest rates and payments. Moreover, the entirely online nature of these businesses makes it much easier to access and control the flows of payments all in one place.

For people looking for a first-time loan, this is also a good option since it gives a larger amount of cash up front than a credit card can and has more reliable payment system.

How to choose the Right Option?

Upgrade, Lending Club, Payoff, and Upstart all provide similar services, but with slightly different restrictions and requirements. Additionally, they use slightly different algorithms, which means you may be more or less likely to receive a loan depending on which site you apply to.

Some, like Payoff, offer a specific service geared towards particular loan purposes – like consolidating all of your debt into one payment.

You can always shop around – as long as the company only performs a “soft pull” on your credit, it often makes sense to get rates from multiple companies to see what your best options are.

The most important differences lie in the states from which they accept applicants, the available borrowing limits, and the different fees associated with each site.

Comparing Loan Rates

When you are comparing multiple personal loan options, always compare rates using the APR.  The APR is a federally mandated rate that all lenders have to show you.

The APR incorporates the loan fees into an interest rate.  So if you have an 8% loan, the APR for that loan may be 10% when you factor the origination fees into the interest rate.

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