Loan Applicants Might Just Give Up After Unattractive Offer

A lender offering unattractive loan terms may not be driving those prospects into the arms of a competitor. Instead, they might actually be discouraging them from searching any further.

This phenomenon was raised in Upstart’s most recently quarterly earnings call when analysts began asking about APRs and acceptance rates. Upstart’s max APR is 36% and they’ve found that the higher the rate goes, the less likely the applicant will accept it.

“I mean it’s very simple,” said Upstart CFO Sanjay Datta. “It’s a pretty classic sort of supply and demand construct, where we raise our rates and not only do our approval rates go down because of the 36% APR cut off but for those who remain approved they’ll be less likely to take a loan.”

That is when Datta expanded further on what becomes of applicants who choose not to move forward.

“And typically, at least what we’ve observed in our data is that people who don’t take loans with us don’t necessarily take them from a competing source,” Datta said. “The majority of them just don’t take the loan. So it causes people’s demand to reduce.”

The Q&A did not invite further opportunity for additional insight on why that might be. Upstart’s experience as a consumer lender also may not translate into small business lending either. For example, in April 2022, a fintech lending study found that 40% of business loan seekers compared more than six options.