About LendUp
The payday lending industry is booming. According to a recent report by the Pew Research Center, 12 million Americans take out payday loans each year, churning about $7.4 billion through the system annually. What’s good for lending companies, however, is not necessarily good for consumers. The average payday loan customer ends upindebted for five months and pays $520 in finance charges.
Enter LendUp, the self-described “solution” to payday loans, which is available to residents of Louisiana, Missouri and California. The darling of Silicon Valley, LendUp is private direct lender claiming dignity, transparency, and opportunity as their core values. For customers, that translates into clear, easily accessible terms of service, no hidden fees or rollovers, a free 30-day loan extension period, and the opportunity to build their credit after a series of successful repayments. The company says it accepts about 15% of loan applications; those that don’t make the cut are referred to local non-profit lenders.
LendUp delivers on its promise of clarity, but, it shares one particularly unfortunate similarity with other payday lenders: high rates. As clear from the chart below, their rates still climb into the triple digits, higher than some of the payday lenders they’re supposed to be against.
LendUp does offer something different than typical payday lenders: the “LendUp Ladder,” a hybrid loyalty/rewards plan that encourages responsible borrowing and financial management.
Once within the LendUp system, your actions earn you points that help you access more favorable terms of credit. Different actions earn you different amounts of points. For example, repaying a loan in full and on time gives you 1,000 points; completing one of LendUp’s online credit education courses scores you 125. The highest level you can achieve, LendUp’s “prime rate,” allows you access to $1000 in credit that can be paid back over a year.
However, there’s precious little data on how many people actually graduate to the prime level. LendUp says that they haven’t been around long enough to have statistics on successes, and crucially, they don’t report to credit bureaus until you’ve reached the platinum and prime level, so you don’t have a chance to build credit before then.
They’re also thin on numbers of how many people pay off their loans by taking out another payday loan. It’s not very helpful to get a non-rollover loan if you need a rollover loan come repayment time. So until we see evidence otherwise, we can’t say with confidence that LendUp is a great payday loan alternative.
Alternatives to short-term loans
If you need cash quickly, don’t get trapped into thinking that payday loans are your only option. There are a number of alternatives that won’t force you to accept 300% APRs:
- Small-dollar credit union loans. A number of credit unions offer loans of $200-$1,000, and the APR can’t be higher than 28%. You can learn more about the program here, or find a credit union here.
- Community banks. Many community banks offer affordable payday loan alternatives; find one in your area.
- State programs. State and local governments sometimes have short-term loan programs, like the ones found in Pennsylvania and San Francisco. You can find more by searching for “payday loan alternatives in (your city or state)”
- Credit-building nonprofits. Consider a credit building institution for a loan that will improve your credit and give you reasonable terms.
