Upstart Launches First Auto Retail Software

Looks like full fledged prodigy launched ahead of schedule? They said loans on it would be ready at end of the year but it’s only early October. Speedy execution. Although they state will be to all dealers early 2022 and only limited numbers for now.

https://ir.upstart.com/node/7216/pdf

Upstart (NASDAQ: UPST), a leading artificial intelligence (AI) lending platform, today announced Upstart Auto Retail software, including AI-enabled financing. The cloud-based solution enables a superior car buying experience for both consumers and dealerships. For the first time, this new software will provide access to Upstart-powered auto loans as well.

Upstart Auto Retail is the evolution of Prodigy Software, acquired by Upstart in April 2021. Since the beginning of 2021, the number of dealerships—also known as rooftops—signed up for the software has nearly tripled. With the addition of Upstart-powered loans, dealerships will be able to instantly offer affordable financing to more of their customers.

“Buying a car is an iconic and memorable experience for most Americans, but the financing step is where things often unravel,” said Dave Girouard, Chief Executive Officer and Co-Founder of Upstart. “Upstart Auto Retail will provide millions of consumers with a car buying experience worthy of 2021, including that all-important financing step.”

Each year, approximately $1 trillion of cars are sold in the US, and most of them are financed.1 Yet purchasing a car consistently ranks among the worst consumer experiences, with less than 1% of buyers satisfied with the current process. Upstart Auto Retail with AI-enabled loans will allow dealers to provide the online and in-store shopping experience that consumers demand, from shopping and vehicle selection to financing and check-out.

Upstart Auto Retail is an end-to-end retail platform that has helped top franchised dealers from 33 top brands such as Toyota, Honda, Subaru and Ford sell billions of dollars of new and used cars and increase customer satisfaction. More than $1 billion of vehicles were sold through the Upstart Auto Retail platform in Q2 2021.

DGDG, the largest family-owned dealer group in the San Francisco Bay Area, has been using what is now Upstart Auto Retail as the only retail solution across the entire dealership group since early 2020. DGDG is adding Upstart-powered auto loans as part of its retail process.

“The auto selling solution we’ve been using from Upstart has empowered our salespeople to make the buying process more transparent and helped sell more vehicles at a higher profit," said Tony Corini, VP of Finance, from DGDG. “Now, by adding Upstart-powered financing, we look forward to approving more borrowers and continuing to develop our No Brainer checkout experience.”

Upstart is currently rolling out AI-powered lending to a limited number of dealers. It will be available in early 2022 to all dealers using the platform.

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So I just test drove the Upstart Auto Loan experience. I had an offer with 4 minutes of work.

– I googled ‘upstart auto loan’ – I got a link for “Refinance your Auto Loan through Upstart” - sweet, I have a loan, lets see what happens!
– It took me to a nice little form, I entered my details.
– It figured out who I was
– It found my existing auto loan, rate and term
– It asked what I wanted to optimize (month price, interest rate, etc.
– It then presented me with options on several loans with terms and interest rates. The rate for the same term loan was actually better than what I current have… so I might actually become an Upstart Customer.

This was the easiest fricking experience I have ever had. I literally just had to know my birthdate, my income, where I work, and what type of car I drive.

THIS TOOK ME ONLY FOUR FRICKIN’ MINUTES!

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ZekeYeehaw, thanks for sharing the experience. Great to hear, it sounds like the auto refi product process is very similar to applying for a personal loan through Upstart.

Also, CEO Girouard was on CNBC TechCheck today: https://twitter.com/davegirouard/status/1445795115373453321?..

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Hello, first time posting, have been reading and learning for months. Many thanks to all, especially Saul for starting the board. I wish I would have known about it years ago.

I have tried Upstart myself on a few occasions and get very different results than those who have posted here. For instance, I decided to try the auto refinance option today and my offers ranged from 20.97% - 26.11% for $50k. I seriously don’t get it. I have a FICO over 800, have been in a government position for over 20 years, master’s degree, have a nice nest egg and have an auto loan from 18 months ago at 1.9%.

Perhaps it is user error, but I have tried experimenting with both the personal loan and auto refinance. Both have returned rates that are far worse than what I can get on a credit card.

Another interesting thing was the Google result when I searched for “Upstart auto refinance” and there were three Google ads (motorefi.com, applefcu.com, vacu.org) that were shown before Upstart. I suppose Upstart isn’t paying almighty Google to be listed first.

Lastly, one of the topics that has popped up in office conversation has been the need to regulate “surveillance capitalism.” Obviously not something that is high on the current agenda, but the testimony of Frances Haugen, the Facebook whistleblower, will reinforce the idea that intrusive collection of user data is dangerous. Again, a long way off, but something that could impact companies that depend on that data (UPST, LSPD, etc).

That said, I am long UPST.

Thanks again for the outstanding crowdsourcing of information.

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I think this has been answered multiple times on this board (or maybe just the UPST premium commons board)

  1. The rate you receive from upstart.com is usually higher than if you applied through a bank partner’s website. For personal loans, the cost of funds for upstart.com loans includes an 8% fee charged by Finwise or Cross River Bank, which provide the majority of loans through upstart.com. That is explicitly stated in KBRA data reports.
    Institutions that demand Upstart securitized loans will want a high specified rate of return which is a factor driving the fee. So that embedded origination fee will automatically make the offered APR unappealing to you, but for many below prime folks the overall APR might still be the lowest they can ever get in spite of the 8% charge included.

  2. The cost of funds from other banks outside of Finwise/CRB is typically less than 1% as other banks are retaining upstart loans on their own balance sheet (bank depository capital is way cheaper than institutional/hedge fund provided capital). So there may be no origination fee involved when using other bank partners.
    A great example of this is my experience applying through Upstart’s bank partner website. I had the lowest personal loan rate offered by UPST versus all its fintech competitors despite a high FICO (https://discussion.fool.com/upstassociated-bank-vs-competitors-n…)

I suspect auto refi is similar in this manner, as to why your rates were so elevated.

  1. Upstart investor relations explicitly state that you are NOT their target market at this time. Super prime folks are not the underserved who needs their help.
    Shoutout to PieR2 who asked Upstart IR this question, see here: https://discussion.fool.com/i-wrote-to-upstart-ir-asking-them-to…
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I just ran mine, and had a similar experience in terms of ease of use, and speed, but had an issue:

they had the wrong loan APR amount for my current loan; actually offered me a higher APR (1 % higher) than I currently have.

we have been aggressively paying it down, not sure if that messed up some algorithms or what happened in my case.

I think they are onto something here, and I am quite bullish on UPST, but my experience wasnt quite as great.

dave

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I have tried Upstart myself on a few occasions and get very different results than those who have posted here.

I believe we have had a similar previous post. And in both cases the principle that may apply is that you are the pinnacle of credit worthiness, so of course, someone else has offered you a better rate. You are not the one with the problem.

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Does anyone else think Tesla would be a great partner for Upstart? This would be a PR oriented benefit as opposed to a significant fundamental one, but just a few points:

  • Tesla has their own financing arm
  • Musk is a huge proponent of AI
  • Tesla cars are getting cheaper and marketed to a much wider swathe of the population.

If Upstart can bring more buyers to their cars due to a better financing experience, win-win for all.

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I also tried the online auto loan feature, and my experience was slightly different. I was told “We are unable to show your rates right now. We are working hard to fix this issue — please log back in after 24 hours to check your rates. If you have questions, please reach out to our Customer Support team.”

They also didn’t find my current loan.

Not a great look.

UPST is still my largest position. Just sharing my experience.

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tamhas - “I believe we have had a similar previous post. And in both cases the principle that may apply is that you are the pinnacle of credit worthiness, so of course, someone else has offered you a better rate. You are not the one with the problem”

I agree high credit worth borrowers might not need UPST’s help and it’s nice of them they are trying to assist people who really need their help. But still as a business why would upstart want to ignore rich clients? Why can’t upstart also offer high worthy clients better rates like others? Does anyone know?

Long UPST (about 25% of portfolio)

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It is not as profitable. It is as simple as that. IF you think you have a methodology for buying only high growth stocks for which you have a high degree of certainty that they will continue to grow much faster than the overall market, would you invest in an index fund? Or buy individual companies that are growing slower and for whom you have less certainty that they will continue to grow faster than their competitors?

You’re on Saul’s Board, so you probably know the answer. IF Upstart can make a loan with certainty to someone that cannot find a better loan anywhere else, there’s profit in that. Loaning to me may be safer, but not as profitable. Why would they be interested, when they have belief their methods work?

Worse yet, when someone who looks really safe on paper shows up in unlikely places for a loan, who do you believe? The data you have access to, or the educated user who went ‘down an alley’ to get a loan? In that situation, I’d be pretty wary, if it were my money.

-Another Rob

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To try and wrap this thread up, Upstart has stated in a multitude of places that one factor in their Algorithms is propensity to payback a loan early. Banking partners do not want this as this lessens the amount of interest they receive from a loan. They want someone who will take the entire loan period to pay back the loan, not early and not miss payments. It’s a balancing act, and normally if you are of high credit your likely hood of paying back a loan early (as a previous commenter mentioned they do) would cause the algorithm to offer you a higher rate so that the banking partner makes the same amount of money.
Hope this helps clarify

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But still as a business why would upstart want to ignore rich clients?

It is the bank that sets the interest rates, not Upstart. I would guess that the bank had a minimum rate for anything coming from that source.

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Another obstacle to making money lending to prime borrowers is that they will qualify for the best promotional rates from the auto manufacturers. So they will have access to borrow at 0.9% or 1.9% just to do something else with the money in the interim.

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A relative had a similar experience X 2 when applying for a personal loan a month or so ago. This could be due to having too much business for human staff to handle ,or screwed up software. Whatever, it is something they need to fix ASAP, turning customers away at the door is a very bad business practice.

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Hi KuberB - having worked for a B-Corp bank, which had a mission to serve the under banked in our local community, I can tell you that they were judged by who they were providing services to. Would they not provide a loan to people with superior credit? No, but they certainly were not providing their best pricing to those individuals because 1) capital at a bank is a limited resource and 2) the mission was better served if that capital was deployed to those they intended to help. We were audited, the results scrutinized to see if we lived up to our stated mission. By providing a less competitive loan quote to those who could get a loan at a different institution, we preserved our capital for our target customer. UPST is no B-corp, but they are Mission oriented, and they do have limited capital. How would they be judged if they said they are looking to serve the under served and their best loan rates ended up going to those who needed it the least? You can get a loan from a variety of old school banks when you have 780+ credit rating.

It’s the idea that you provide your best rates for those who, ostensibly, need access to your capital the least that spurred UPST to try something different. In ten years, if the market for credit is fully changed by what UPST is doing, then they’ll be providing that same preferred rate to those with stellar and not so stellar FICO scores. For now, their sights are set on only those who are less likely to get a great rate because the current credit systems leave much to be desired.

Just my 2¢

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DangerGranger said …propensity to payback a loan early. Banking partners do not want this as this lessens the amount of interest they receive from a loan. …

But if you look at the amortization tables for a loan, don’t you find that most of the interest is paid up front. So if you pay off a 5 year loan in year 4, that would be unwise as most of the interest is paid, and now you are just paying yourself, so you should leave that lump sum in the market (for instance).

Am I wrong? I know that is home mortgages work, but not sure about auto.

Pete

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But if you look at the amortization tables for a loan, don’t you find that most of the interest is paid up front. So if you pay off a 5 year loan in year 4, that would be unwise as most of the interest is paid, and now you are just paying yourself, so you should leave that lump sum in the market (for instance).

you pay exact the same rate at any moment of duration of the loan. The reason that you pay more interest at the beginning is due to the larger principal. For mortgage, usually people want to pay off early if the rate drop and don’t pay off early when the rate rise. That’s exactly what the lender don’t want.

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Pete,
People were just wondering why Upstart would give someone of better credit a higher interest rate than their current one, not really wether or not it was wise to pay off a loan earlier. That is a little off topic for this board in my opinion.
I was just explaining the business reasons behind it instead of a personal judgment.
I wish that I remember which Leaders in Lending Podcast broached this topic really well, but I have listened to many of them. I suggest everyone who is invested for listen to that podcast which was brought to the board by Jonwayne

Long Upstart (36 percent)

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