Our Take on the Payday Loan Industry

We are dedicated to facilitating a conversation about the future of short-term, small-dollar credit, and we welcome your thoughts at questions@lendup.com

Who takes payday loans?

The following is a case study based on recent research by the Center for Financial Services Innovation.

Like millions of Americans, Pamela* lives paycheck to paycheck, and doesn't have a good credit history. She is a responsible person and works diligently to meet her expenses each month. But just barely: when her car has trouble, the restaurant where she works is slow, or all the bills are due just before her next payday, she just doesn't have the money to cover it.

Without a good credit history, she can't get a credit card, and banks won't lend to her, because she's deemed too risky. She could just let the electricity bill go overdue, but that could further damage what little credit history she has, and it'll cost even more to pay the late fee and have the power turned back on.

For Pamela, and millions of middle-income Americans like her, a payday loan is an option for helping her stay afloat until her next paycheck comes in.

* Pamela is a persona based on Know Your Borrower: The Four Need Cases of Small-Dollar Credit Consumers, a report from the Center for Financial Services Innovation, and insight directly from LendUp borrowers.

What are the options?

When choosing a lender, Pamela has two options. Traditional payday lenders and the potential pitfalls that come with them, or LendUp.

Potential Pitfalls

  • Debt traps: Rollovers are a way for lenders to make money on borrowers without means to repay their loan. Here's a definition from the CFPB.
  • Opaque terms: Lack of clear disclosures make borrowers less likely to repay on time. Lenders don't mind; they profit from the hidden fees.
  • The same high rate forever: Responsible borrowers pay the same fees as those who never repay. Month after month. Year after year.
  • No customer protection:: When lenders avoid regulatory scrutiny by incorporating outside US law, the customer loses rights and protections.

LendUp Solutions

  • No debt traps: No roll overs, no refinancing! LendUp provides a safe loan that puts you in control. We don't make money when things go wrong. Instead, we work with you to provide a no-fee repayment solution.
  • Clear terms: We want to encourage responsible borrowing. We make money when customers pay us back, not when they get deeper in debt.
  • The LendUp Ladder: Designed to put financially responsible customers on a path to apply for larger amounts of money, often at lower interest rates. Ladder availability varies by state.
  • Licensed direct lender: We are proud to comply with all state and federal regulations, because that's how we can offer customers the best protections.

After considering her options, Pamela chose to borrow from LendUp.

Does LendUp really work?


Industry Average APR for storefront “payday” loans according to the nationwide CFPB study, “Payday Loans & Deposit Advance Products”

LendUp Average APR for loans taken by customers in states with full Ladders who chose the least expensive loan available to them at each level of the Ladder.


Data from an actual LendUp customer (M.T. from Orange County, CA) as of 11/2015. APR depends on the number of points accumulated. Ladder availability varies by state. Explore the Ladder in California

LendUp was obviously the right choice. Pamela's loans got bigger, cheaper, and more flexible over time, reducing her need for frequent borrowing. She was recently able to replace her washer and dryer with a LendUp Prime loan of $1000 at under 30% APR. Her repayment behavior for installment loans was reported to major credit bureaus. She's on the path to prime credit. None of this would be possible if she borrowed from traditional payday lenders.

How can LendUp afford to offer all these benefits?

We are committed to improving the lives of our customers, so instead of charging higher rates, we create efficiency elsewhere. We approve more responsible borrowers because we build our own software. We save money on rent by operating online. We could charge more if we wanted, but we're invested in creating a secure financial future for all.

How we make credit decisions

We believe traditional credit bureaus don’t always give a complete picture of creditworthiness - particularly for borrowers with damaged or limited credit histories. Therefore, we use multiple FCRA compliant data sources - traditional credit bureaus, non-traditional credit bureaus, and public records - in our underwriting. We use this to verify an applicant’s identity and assess their ability and likelihood to repay, looking for opportunities to say yes to people looking for access to credit. We see the potential for other data sources like social media to further open up credit to those who banks and credit unions cannot approve; however, because of the challenges in ensuring accuracy and fairness, they are currently not a part of our credit underwriting.

In accordance with state and federal laws, for those we can’t approve, we display what is known as an “Adverse Action Notice” that lists the data source(s) that were used in our underwriting, as well as the contact information so our customers can identify and correct any potential inaccuracies. To further empower our customers, we built one of our credit education courses to specifically teach the importance of and mechanisms for correcting inaccuracies in bureau data.

How we invest in the future: Credit education and the opportunity to build credit (where available)

Better loans are important, but our customers need more. They need access to and an understanding of different types of credit, and we help them with both.

We want to empower our customers to take control of their financial lives. Our credit education videos explain the key tenets of financial literacy. They are distilled into understandable chapters and focused on practical advice. We incentivize our customers to learn more: when they do, they move up the LendUp Ladder faster.

But the real change comes with the opportunity to build credit. We created the ability to share customers' payments with the major credit bureaus, and to provide borrowers the opportunity either to establish or improve their credit scores wherever possible (LendUp Ladder availability varies by state). And our goal is to improve our borrowers' credit scores.

Let us know what you think.

We’re proud of what we’ve created to date and we’re still learning how to do this better. Let us know what you think and write to us at questions@lendup.com to get a conversation going.

The LendUp Ladder

The LendUp Ladder

Borrowers in eligible states can earn
access to apply for lower rates.

Explore the Ladder in California

The LendUp Ladder

About LendUp

Our mission is to provide anyone with a
path to better financial health.

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