Upstart Refocuses on Personal Loans as Consumer Stress Rises

Upstart is refocusing on personal loans, which CEO Paul Gu called the company’s most differentiated and highest-margin product. Core personal-loan growth accelerated sharply in the second quarter as the company redirected resources toward marketing, approvals, conversion and underwriting. Consumer credit conditions have worsened: Upstart’s Macro Index reached approximately 1.5, indicating borrowers were about 50% more likely to default than before the pandemic. The company is nevertheless working to bring its auto and HELOC products to break-even before year-end. Upstart’s planned national bank, expected to launch in early 2027, remains its largest 2026 project and could reduce operational complexity and lower funding costs. Management also expects operating-expense growth to slow to low single-digit quarterly growth in the second half of the year.

Upstart NASDAQ: UPST CEO Paul Gu said the company is concentrating its efforts on expanding its core personal loan business, which he described as the company’s most differentiated and highest-margin product. Gu said the segment’s growth accelerated in the second quarter, with core personal loan growth reaching roughly 3.5 times the growth recorded across the prior three quarters combined. Gu, who previously served as Upstart’s chief technology officer, said the company has shifted internal priorities across marketing, application conversion, approvals, rate acceptance and verification to emphasize personal loans. He said the company had previously directed more resources toward other initiatives but has since refocused teams on increasing personal loan volume.

“Core personal loans is what we’re really, really good at doing,” Gu said, citing the company’s ability to separate credit risk and identify borrowers it believes can be uniquely underwritten in the market.

While Upstart continues to pursue newer products, Gu said the company has narrowed its list of priorities. He said Upstart paused its auto refinance product because it did not have the same potential, growth profile or momentum as other initiatives.

Gu said the remaining product bets have large addressable markets, are adjacent to areas in which Upstart already has expertise, and have sufficient momentum to justify additional investment. The company’s secured lending products include auto lending and home equity lines of credit, or HELOCs. For those newer secured products, Gu said Upstart first focused on validating demand and building third-party capital-provider relationships before turning to unit economics. He said the company believes it has demonstrated demand from auto dealerships and from HELOC borrowers seeking its rates and process.

Upstart is now working to move the secured products from negative contribution margins to profitability. Gu said the company expects those products to reach break-even before the end of the year, after which it plans to focus more heavily on scaling them. He declined to project their long-term margins but said there was no theoretical reason they could not eventually approach the economics of the core personal loan business.

Gu discussed the company’s Upstart Macro Index, or UMI, which measures the likelihood that consumers will default on unsecured consumer credit relative to pre-COVID levels. A reading of 1.0 corresponds to conditions in 2018, 2019 and early 2020, he said. With the UMI at approximately 1.5 as of Sept. 3, Gu said a consumer with the same borrow...