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LendUp: A Responsible Alternative To Payday Loans?

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Do you need to borrow $250 or less for just a few weeks? Are you fed up with traditional payday lenders and looking for a better way to borrow money? If so, you might consider LendUp, an online lender that offers small-dollar loans with no credit check required.

But is a LendUp loan really a better alternative to a payday loan. Here’s a look at what LendUp offers, how much its loans cost, how the application process works and whether its service is legitimate.

What LendUp Offers

LendUp is an online-only direct lender of small-dollar-amount, short-term, unsecured loans designed for emergency cash or making ends meet. When you begin with LendUp, you can choose your loan amount and loan term, from $100 to $250, and seven days to 30 days. You can only get one loan at a time. They are similar to loans you might have seen labeled payday loans, installment loans, direct loans, personal loans or cash advances.

How LendUp Is Different

LendUp’s difference from payday lenders, the company says, lies in its transparent, up-front pricing and what it calls the LendUp Ladder. This structure allows customers to earn their way to an annual percentage rate (APR) as low as 29% over time as they repay their LendUp loans on time and complete credit education courses at the LendUp website. The courses cover credit building, consumer credit rights, the true cost of credit, credit reports, building credit and protecting yourself online.

LendUp has four status levels borrowers can achieve: silver, gold, platinum and prime. You start at the silver level, and as you move up, you can borrow as much as $1,000 for as long as six months. Once you reach the platinum and prime levels, your payments can be reported to credit bureaus to help improve your credit score and fatten your credit file. You also pay a lower interest rate as you establish a good repayment history. The interest-rate drop isn’t entirely a reward for good behavior, though: One reason your APR gets lower is because the repayment period is longer.

What if you have trouble repaying a LendUp loan? Unlike a standard payday loan, you cannot simply roll the loan over at additional cost. Instead, LendUp says it will work with you to create a repayment plan at no additional cost. Eligible borrowers can even request an automatic extension of up to 15 days online. As with other creditors, if you don’t repay your loan, your account may be sent to a collection bureau, you may be sued and LendUp may report your account delinquency to credit bureaus, which will hurt your credit score significantly.

What LendUp Loans Cost

The APR on LendUp loans is high compared to other types of consumer loans. It ranges from 29%, for the best, established customers to as high as a state’s legal maximum APR for short-term loans: 460% in California, for example. APR is highest with the seven-day, $250 loan, at 767% (or less, depending on your state’s laws), and lowest with the 30-day, $100 loan, at about 210%.

To put these rates in perspective, a 30-year fixed-rate mortgage might have an APR of 4%, an auto loan might have an APR of 6%, a student loan might have an APR of 5% to 8%, and a credit card for someone with good credit might have an APR of 11%. An APR of 29% is often the default rate that credit card users have to pay when they are delinquent on their minimum monthly payments.

Peer-to-peer lender Prosper charges 6.68% to 35.97% APR, and its competitor, Lending Club, charges 7.64% to 28.69% APR. Both Prosper and Lending Club require a minimum credit score of around 650. The other consumer loans listed here also have minimum credit score requirements, and the lower your score, the higher your rate. (For related reading, see Top Alternatives To A Co-Signer ). By contrast, LendUp has no minimum credit score requirement.

One reason the APR on LendUp loans is so high is because the loans are for such a short period. When you borrow from LendUp, you pay a loan fee of 15% to 20% of the total repayment amount, minus 30 cents per day for every day under 30 days of loan duration. So you might borrow $200 for 30 days with a 15% fee of $34.90, and the APR would work out to 212.31%. That same loan for 14 days would have a fee of $30.10 and an APR of 392.38%. But LendUp makes its fees clear up front, so you understand exactly what you owe before you borrow.

Additional Fees. The loan fee may not be all you're charged with a LendUp loan. To receive your loan funds rapidly, within two hours of approval or the same day you apply, LendUp charges an additional fee. There is a fee for using your debit card to repay your loan early. And if your scheduled repayment doesn’t clear your checking account, LendUp charges a one-time $15 non-sufficient–funds fee.

Requirements and Application Process

To get a LendUp loan, you must be at least 18 and be a legal resident of the United States. At the time of writing, loans are available to consumers in 16 states: Texas, Louisiana, New Mexico, Alabama, Wyoming, Idaho, Oklahoma, Washington, Illinois, Mississippi, Oregon, Kansas, Missouri, Tennessee, Minnesota and California. The company has applied for licensing in Florida, Maine, Ohio and Indiana, but is not yet authorized to do business there. LendUp isn’t available nationwide because 18 states limit or ban payday lending; only 32 states specifically allow it.

To apply, you’ll need an active checking account, a phone that can receive calls and a valid email address. You can apply from your smartphone, tablet or computer. Make sure you’re using a secure Internet connection, not public WiFi, so that your sensitive personal information can’t easily be stolen. Then provide your name, address, Social Security number, birthdate and mobile phone number. You’ll also need to provide information about your employment and income. The application then asks for your checking account number

and the bank’s routing number for the account where you want your loan proceeds deposited.

Next, you’ll have to answer several security questions similar to ones you might have had to answer when applying for a previous loan or credit card or when requesting a copy of your credit report. Questions might include “In which county have you lived?” “Where was your Social Security number issued?” or “Which of the following people do you know?” LendUp will deny your loan if it can’t verify your identity based on the information you provide.

You can be approved for a LendUp loan with no credit or poor credit. Instead of checking your credit report, LendUp can use data from two big data providers: LexisNexis Risk Solutions Consumer Center and Clarity Services. If you provide proof of income, LendUp won’t do a hard credit pull, so applying for a LendUp loan won’t hurt your credit score.

LendUp’s online application process takes about five minutes and you’ll get a decision on your loan application instantly. If your loan is approved, LendUp will deposit the money in your checking account. For an additional fee, you can receive funds in as little as 15 minutes if your debit card supports direct deposits. You can then manage your loan online. On your loan due date, LendUp automatically withdraws the funds and loan fee from the same checking account in which the loan was deposited when you took it out.

Is It Legitimate?

LendUp is a legitimate company. It was founded in 2011 and its official name is Flurish, Inc. It’s based in San Francisco, but operates online only, with no physical stores. LendUp is backed by major investors including Google Ventures.

Knowing that LendUp is a legitimate company, should you do business with it? That depends on your circumstances. You might be able to get a small-dollar loan, also called a small short-term loan, with a lower interest rate from your local bank or credit union. Since you can’t get a LendUp loan without a checking account, why not ask the bank where you have that checking account if you qualify for any loans or credit cards before borrowing money at LendUp’s high APR?

Other unpleasant – but still probably less expensive options than LendUp – include borrowing from family or friends, taking out a cash advance from a credit card (see How A Cash Advance Works ), negotiating payment due dates with your creditors, and even asking your employer for a one-time advance on your pay. Paying a late fee on an overdue bill or an overdraft fee on a checking account can also be cheaper than taking out a payday loan, depending on the details of your situation.

What about the benefit of improving your credit score? Since your LendUp payments aren't reported to credit bureaus until you reach the platinum level, if your primary goal is to build your credit history or improve your credit score, there are better, much lower-APR ways to do so.

As far as customer satisfaction, LendUp has a D rating with the Better Business Bureau, based on 11 complaints filed over the last three-and-a-half years. It appears that most of these complaints either came from consumers who were scammed by fraudsters imitating LendUp or from consumers who had technical problems with the company’s website.

LendUp seems to be responsive to resolving customer complaints. The company also has positive reviews in the form of customer video testimonials on its website. These reviewers may have received points to move up the LendUp ladder as compensation for their reviews, LendUp states in its disclosures.

The Bottom Line

Fortune magazine asked in a 2012 article if LendUp is “a better model, or a pretty face on an ugly business?” Like payday loans and high-interest credit cards, LendUp is targeted at customers who don’t have good credit.

The company has said it wants to create better alternatives to predatory loans, but LendUp doesn’t really offer borrowers lower rates than payday loans do, at least not at first. Right on its homepage, it shows a sample loan of $200 for 14 days with $29.50 in interest, which amounts to an APR of 384.55%, about the same as the 390% APR of a typical payday loan. Where it's different from traditional payday lenders is that it doesn't let customers roll over loans multiple times until the interest is much higher than the original amount borrowed (see Beware of Payday Loans ) .

Traditional payday loans aren't reported to credit agencies, and therefore can’t help you build the credit history conventional lenders rely on when approving or denying loans. With LendUp, eventually you can take out loans that will be reported to the credit bureaus and help you build good credit (assuming you pay on time), but that means being a repeat customer of high-interest loans.

Further, while LendUp says its driven by a social mission and a desire to “transform the consumer lending industry and help millions of people,” the payday loan market serves millions of people who borrow billions of dollars each year, and payday lenders earn $7 billion in fees annually. There’s no question that high potential profits would be integral to the LendUp business model.

According to the personal finance website NerdWallet, the typical payday loan consumer pays $574 in fees annually and owes money to a payday lender during more than half of the year. Payday loan customers tend to be repeat customers, with most taking out another loan in the next 30 days. There’s nothing wrong with a legitimate company earning a profit for providing a service that consumers understand and value, but borrowers should keep in mind that while LendUp may have a social mission, it is a business, not a charity. They will be held responsible for their loans, not given handouts.

Taking out a LendUp loan might be a good alternative to a conventional payday loan, but it’s still an expensive borrowing option. For more on the issue, read What are the differences between payday loans and cash advances?

Category: Payday loans

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