- Upgrade is entering into the auto loans business.
- The company is making the auto loans available to a wide range of consumers, even those with FICO scores as low as 580.
- The move comes as others are pulling out of auto lending or tightening lending restrictions.
Digital bank Upgrade announced this week it now offers auto loans. The California-based company plans to originate the loans via car dealers and re-sell the debt to its network of banks.
According to Bloomberg, which broke the news, the company will target a range of consumers– even those with sub-prime credit– and plans to extend loans to consumers with FICO scores as low as 580.
This announcement comes at a time when many consumers are underwater on their auto loans, triggering higher delinquencies. According to Edmunds.com, the average U.S. consumer’s monthly payment reached $733 in July, marking a record high.
Because of this, multiple lenders have either exited auto lending in some capacity, or have tightened their lending standards. This has left a “void in the market,” according to Upgrade Co-founder and CEO Renaud Laplanche. “It’s great to be in that position to lower the cost of auto lending at the time it’s really needed,” he said.
Where others are backing out, however, Upgrade is doubling down. The company claims to have a competitive advantage over other lenders because it taps multiple sources of funding– from banks, to credit unions, to asset managers– which purchase the loans after Upgrade has originated them.
While Upgrade already offers auto loan refinancing as part of its banking product suite, this is the company’s first foray into auto loan origination. The company refinances auto loans at 5.24% to 17.94% APR on cars less than 10 years old with mileages under 130,000.
A group of 30 car dealers in California and Oregon are piloting Upgrade’s auto loans, which went live with the loans earlier this week.