Lending a hand with student credit history

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Loans are virtually impossible for a college student or a recent graduate to get if he/she doesn’t have a credit history. A new lending platform, Upstart, wants to help.

Upstart, which began to service loans in April 2014, provides unsecured 3-year loans to young borrowers even if they don’t have a FICO score. Instead, the loans, which can be for as little as $5,000 and as much as $25,000, are based on variables such as college grades or work experience.

The venture has risks as well as advantages, according to three experts whom we interviewed. The loans have an interest rate that ranges in six grades from a 6.68 percent annual percentage rate (APR), with a 1 percent origination fee, to a 21.99 percent APR, with a 6 percent origination fee. Upstart says its loan grades are based on each borrower’s ability and likelihood to repay the loan.

Borrowers who would benefit most include those who have high grades or are in high-employment professions, such as nursing or computer science, says Dave Girouard, who is the founder and CEO of Upstart. The loans could pay off higher interest student loans or be used in lieu of an automobile loan, says Bijan Golkar, who is the vice president of FPC Investment Advisory. The rate at Upstart “probably would be better than at a car dealership, especially if a credit score is an issue.”

However, the loans could be problematic. In addition to a high APR if you don’t qualify for the best rate, It could have disastrous consequences on your credit score if you default or fall behind, Golkar says. “No credit is better than bad credit.”