NAFCU Services Blog

Jul 28, 2023

A personal loan partnership to withstand economic cycles

By Allison Huber, Content Marketing Manager, Upstart Lending

In the wake of recent bank failures, personal loans offer a short duration, high yield asset to help offset balance sheet risk. Especially as high interest rates and inflation persist, many consumers are also turning to personal loans to consolidate debt and maintain their quality of life – in fact, – personal loans at credit unions totaled $67.6B in April, up 23 percent from a year earlier.[1]

As credit union leadership teams plan to either scale or stand-up a personal lending program, fintech partnerships can offer a low-cost alternative to the headcount and marketing resources that an in-house operation often requires. However, with many partnership options available, including loan participation programs, how can credit unions ensure they’re selecting the best partner to fit their needs?

Though some credit unions draw comparisons between referral programs and loan purchase programs, referral programs offer some distinct advantages, including the ability to grow new members, cross-sell for long-term growth and greater credit policy control, including consideration of macroeconomic risk.

Member growth

Referral programs not only improve the digital experience for credit unions, but also help them acquire new members who meet their desired credit parameters. For example, with the Upstart Referral Network, through, qualified personal loan applicants are automatically offered a personal loan based on the credit union’s underwriting requirements. If these applicants accept the loan terms, they are presented with the credit union’s loan documents and can be funded as quickly as the next day.

Upstart’s API also enables credit unions to board members directly to their core for long-term relationship building. Moreover, during the loan origination process, banks and credit unions can promote additional offerings at no cost, creating valuable cross-sell opportunities.

Unique cross-sell opportunities

Unlike traditional loan purchase programs, where loans are originated by the lender and sold to other institutions, Upstart  helps credit unions to establish a true member relationship, enabling them to cross-sell other products and services to these members Additionally, these loans are originated using the credit union’s underwriting parameters.

Several Upstart lending partners have successfully cross-sold additional products to borrowers sourced through Upstart, resulting in long-term growth. For instance, Commonwealth Credit Union has cross-sold additional products to 7.8 percent of its Upstart-acquired members, including checking and savings accounts, credit cards, home equity loans, and auto loans. This demonstrates the strong cross-sell potential that is often challenging to achieve with indirect lending models.

Greater credit policy control

Some fintech partners empower lenders with precise control over their credit policy, enabling them to configure various parameters. This level of control surpasses what traditional loan purchase programs offer as lenders can define eligibility criteria based on their requirements, ensuring the program aligns with their desired risk appetite and target market. In contrast, loan purchase programs often provide limited control as they rely on bulk purchases of loans based on expected returns.

As economic cycles evolve, credit unions using Upstart have the flexibility to start with lower loan volumes and gradually scale as their comfort level increases. Additionally, Upstart’s Macro Index (UMI) provides insights into how changing economic conditions impact credit performance for personal loans, enabling credit unions to make better informed decisions about their portfolios.

The referral network difference

In summary, referral network options, like Upstart, distinguish themselves from other personal loan providers, including loan purchase programs, by facilitating long-term member growth, cross-sell opportunities and the ability to personalize credit policy to fit their needs in challenging economic cycles.

These strengths contribute to referral networks’ effectiveness and appeal to credit unions looking to enhance their loan offerings, especially as borrowers turn to credit to maintain their quality of life in challenging times.

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