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Upgrade Inc. will offer consumer auto loans for the first time, jumping into a business that some banks have been abandoning because of credit-quality concerns.
The fintech plans to target "all types of consumers," including those with FICO scores as low as 580, the San Francisco-based company said in a statement. Upgrade, which already offers auto-loan refinancing, said the auto-lending business launches on Wednesday.
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"We do think there's a void now in the market," Upgrade co-founder and CEO Renaud Laplanche said in an interview. "It's great to be able to be in that position to lower the cost of auto lending at the time it's really needed," said Laplanche, who co-founded LendingClub Corp. before starting Upgrade in 2017.
Buoyed by strong demand, car prices have remained stubbornly high post-pandemic. The average U.S. consumer's monthly payment reached a record $733 in July, according to Edmunds.com Inc. Historically high used-car prices have left many borrowers underwater on their auto loans, which could mean higher delinquencies ahead.
Citizens Financial Group Inc. exited a business in June that worked with car dealerships to provide consumers car loans, and Capital One Financial Corp. stopped offering loans to dealers making inventory purchases earlier this year.
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Laplanche also said the lenders that haven't pulled back from the space have tightened their lending standards, providing an opportunity for Upgrade to enter the sector.
Upgrade said it has access to "multiple sources of funding (credit unions, banks, asset managers) that all have a different risk appetite," giving it a competitive advantage to other lenders.
Laplanche didn't rule out securitizing — packing consumers' auto loans into bonds — at some point, but given the relationships the firm has with asset managers and credit unions to buy the loans after they've been originated, Upgrade won't need to venture down that path, he said.
A group of 30 car dealers in California and Oregon will first have access to Upgrade's auto lending offering on Wednesday, Laplanche said.
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