Every year, thousands of California borrowers have to turn to payday loans and high cost installment loans to pay for emergency expenses or to bridge gaps in personal finances that can occur when the timing of their expenses doesn’t line up with their pay periods.

According to a publication from the Consumer Financial Protection Bureau (CFPB), “Consumers with limited credit histories reflected in the credit records maintained by the three nationwide credit reporting agencies … face significant challenges in accessing most credit markets.” This means millions of borrowers with low or no credit scores turn to alternative financial sources like payday loans, which are an expensive form of credit.

Knowing this, LendUp set out to create transparent, quality products that provide an alternative to the costly, often abusive products offered by other companies. And we’ve succeeded.

In fact, we’re now thrilled to share that in 2015, we saved our California customers $9.4 million.

To illustrate how we were able to provide such dramatic savings, look at this example of an actual LendUp customer from Rancho Cucamonga, CA, whom we’ll call Jane. When Jane first joined LendUp in late 2012, she looked similar to what the CFSI calls a “Misaligned Cashflow Borrower” (in that she frequently took out short-term, single-payment loans to manage her expenses). Since the timing of her income seldom matched the timing of her expenses, she was on pace for 14 loans in her first year as a customer.

However, Jane quickly moved up the LendUp Ladder and was given access to longer term, lower cost installment loans, consistent with two of the central tenets of the Center for Financial Services Innovation (CFSI)’s Compass Principles: “ensure borrowers receive the most appropriate and lowest-priced loan for which they qualify” and “provide opportunities to graduate to lower-cost products.” Because Jane climbed the Ladder, she was able to access much larger loans with lower interest rates and longer repayment terms, and was able to dramatically reduce how often she needed to borrow money. This resulted in $570 in savings versus what she likely would have paid at other installment lenders.

Jane’s story is similar to that of thousands of California borrowers like her — individuals who tend to use payday loans five or more times per year because they frequently don’t have access to credit cards and often have to rely on short-term loans to bridge the gaps between expenses and income.

Almost 30,000 LendUp customers in California with borrowing habits similar to Jane’s accounted for most of the $91 million we lent in the state in 2015. Each of those people saved an average of roughly $320 over what they’d have paid to borrow from other installment lenders, leading to an aggregate savings of $8.9 million. Combined with our other California borrowers, we’re proud to have saved our California customers a grand total of $9.4 million.

Here’s more detail on how we helped California borrowers save:

  • We’re a cheaper option for first-time borrowers. According to a report published by the Center for Responsible Lending, “Payday lenders typically charge the maximum possible rate allowed in a state” — but by truly factoring a borrower’s risk into our pricing, we can avoid doing so.
  • We reward customers who pay us back. Just as rates can decline for credit card customers with a history of on-time payments, rates also decline for responsible LendUp customers. With positive repayment history, our borrowers can earn access to loans with rates as low as 29 percent over time.
  • Our customers can gain access to larger loans payable in smaller installments.
  • LendUp borrowers can also gain access to cheaper, credit-building loans. This opportunity to improve credit scores, which has the potential to unlock a wider set of financial products, reflects another of the CFSI’s Compass Principles, which proposes that short-term credit lenders create opportunities for upward mobility and financial health by allowing borrowers to turn on-time payments into better credit opportunities.

The savings achieved by our California borrowers strongly reflect our mission and one of our key beliefs: Customers who successfully pay back loans are more likely to repay subsequent loans. As a result, we think their costs should go down because the risk associated with lending to them declines. Unlike traditional payday lenders who don’t take their customers’ previous on-time payments into account, LendUp recognizes customers who are on the path to financial health.

The practice of allowing customers to earn better interest rates and access larger amounts of credit through repeated on-time payments is a key element in many financial products, from mortgages to credit cards and even savings accounts. We’re thrilled to be able to offer these features to borrowers who can’t typically access many traditional financial products.

Doing so is what allowed us to save California borrowers millions in 2015 — and we’re just getting started.

METHODOLOGY: Measuring how much money we saved customers wasn’t easy, mainly because it’s difficult to compare our products to other products our customers can access. To calculate savings, we pulled the listed interest rates from the websites of eight of the largest traditional payday lenders in California to understand the fees they charge on both traditional payday loans and larger, longer-term installment loans. In each instance, the lowest listed APR for traditional payday lenders was used to ensure the most conservative view on cost savings, and then these individual rates were averaged to come up with a single industry average. For single payment (traditional payday) loans, the lenders had an average flat fee of 17.63 percent. For installment loans, five major lenders had an average APR of 186.34 percent on loans ranging from $2,600 to $3,000 and durations from 12 to 42 months.