Update turns loan fees into installment loans with maturities

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Consumers are starting to realize that credit cards are bad for their finances, ”said Renaud Laplanche, co-founder and CEO of the company. Upgrade, Inc., fintech market for relatively inexpensive installment loans.

The founder and former CEO of Lending Club has taken up personal finance again at a company that began operations in 2017 and has provided over $ 7 billion in loans to consumers. Its latest Series E round raised $ 105 million under the leadership of Koch Disruptive Technologies, as well as new and existing investors including BRV and Ventura Capital, advised by Julius Baer, ​​bringing the firm’s value to $ 3.325 billion. “It’s profitable,” Laplanche said.

Upgrade offers an installment loan with recurring principal and interest payments and, importantly, an end date for the loan.

“Credit cards are a pretty bad consumer product,” Laplanche explained. “The average interest rate is around 17% and they also have a lot of commissions. The worst feature is the minimum monthly payment, which is very small, but if you only make the minimum it will take you 20 years to pay it off. Credit card companies are designed to keep customers indefinitely in debt, which is why there is a trillion in credit card debt. ”

“Updating is a different matter,” he added. It has an installment structure rather than a renewable, endless credit card balance that people carry over every month. The company offers direct personal loans and a Visa Upgrade card that can be used as a credit card in a store or online. The firm also offers 2% on verification.

“The reason we can afford it and stay profitable is because we also have credit products (upgrade card and personal loans) and many of our checking clients also become credit clients over time. This way, we don’t need to earn money from a checking account for rewards, ”explained Laplanche.

With an upgrade card, loans have a maturity date.

“At the end of each month, the balance sheet turns into an installment plan that customers pay over 6 months or several years — it comes with strict discipline to pay principal and interest every month, so it’s easy to budget. It includes the factor to get enough sleep and sleep at night to pay off your debt. You bought something expensive, but in a year it will pay off completely. “

After several months of using Upgrade, he says, customers improve their credit ratings and reduce their debt. Renewal clients often use an installment loan to pay off credit card debt and start over, knowing they have access to a loan that they can pay off quickly. Laplanche said the average Upgrade customer is 42 years old, makes about $ 100,000 a year, and has a credit rating of 700.

“I think we are seeing a wider audience of consumers begin to understand that credit cards are bad for you and you should pay off your debt. It took a long time – the financial crisis, homeless people, and the recent Covid crisis. ”

Banks could develop something similar to Upgrade, but it would not be as profitable as revolving credit, he added.

The shutdown of branch networks during Covid showed people that they didn’t really need a bank branch – they would conduct their banking transactions online. The rise in neo-banks represents competition for renewal, he said, but perhaps more importantly, it expands consumer knowledge of branchless banking.

According to Laplanche, Upgrade uses artificial intelligence and machine learning to assess the creditworthiness of customers and then evaluates its loans as efficiently as possible.

Increase money, The financial product comparison site says renewal rates range from 5.94% to 35.9%, plus clearance fees ranging from 2.90% to 8%, which are deducted from the loan amount. Loans have no prepayment penalty and the firm offers free loan monitoring.

“On average, our annual interest rates, including fees, are at the adolescent level,” Laplanche said. “Our clients say they save 4 to 5 percentage points over their traditional credit cards.”

“The loan obtained through Upgrade can be used for a large purchase, debt consolidation, repayment or refinancing of credit card debt, or to finance a home improvement project,” says Magnify Money’s review.

Credit Karma members posted a range of ratings ranging from five to one star, as well as some customer service complaints.

Upgrade sells its premium and premium loans and credit card loans to banks and credit unions, while lower quality and higher yield loans attract asset managers who are more risk averse and seek higher returns.

“We are not interested in creating a big balance,” Laplanche said. “As soon as we make loans or our clients have credit card receivables, we sell them.”

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