A new personal credit line product introduced by a startup in San Francisco marries some of the most attractive aspects of a personal loan and a credit card.
However, some consumers might find that the new offering from Upgrade Inc. comes with a steep interest rate — as high as 35.89%.
In a news release, Upgrade says its new “personal line of credit” features the low cost, fixed rate and fixed monthly payment of a personal loan with the flexibility of credit lines available through a credit card.
How does the personal credit line from Upgrade work?
With Upgrade’s new product, a consumer can seek a credit line up to $50,000 and can ask to tap into that credit line as needed. For instance, you might be approved for a total credit line of $10,000 but “withdraw” money only in $2,500 increments. For each “withdrawal,” known as an advance, there’s a fixed annual percentage rate (APR) along with a fixed repayment period (12, 24, 36, 48 or 60 months) and set payments (such as $225 a month).
Unlike a credit card, an advance from an Upgrade personal line of credit has a specific payoff date and doesn’t have variable APRs. Every time you tap into that line of credit, you’ll get a set APR and payoff period, and you’ll be able to pick a repayment period.
No fees are charged to set up or use an Upgrade line of credit. And the APR applies only to the amount you actually borrow (such as $2,500) and not the entire line of credit (such as $10,000).
Upgrade says its personal line of credit differs from two similar products — a home equity loan and a home equity line of credit (HELOC) — in three ways:
- A consumer can gain approval in a few minutes, rather than a few days.
- A consumer doesn’t need to put up collateral, such as a home.
- A home appraisal isn’t necessary.
The pros and cons
Upgrade’s personal credit line might not be for everyone, though.
For one thing, Upgrade loans aren’t available to residents of Connecticut, Colorado, Iowa, Maryland, Massachusetts, Vermont and West Virginia.
More importantly, the APR for an Upgrade personal credit line might be a lot higher than the APR for a credit card.
Upgrade says its credit lines offer APRs of 6.46% to 35.89% on amounts ranging from $500 to $50,000. An APR of 6.46% is way below any credit card APR you’d find, but an APR of 35.89% is way above any credit card APR you’d find.
In other words, a line of credit with an APR of 6.46% would be a deal, while a line of credit with an APR of 35.89% would be a steal (as in money is being stolen from you).
Upgrade points out that a shorter repayment period can result in a lower APR, meaning you’d be paying less to borrow the money. But if you’re shooting for a lower monthly payment, you might want to go with a longer repayment period. However, keep in mind that if select a longer payment period, you’ll be paying more interest over time.
Is this product right for you?
Of course, Upgrade doesn’t extend loans to everyone who applies. Just as with credit cards and other types of loans, you’ll qualify based on your credit score, credit history and other factors.
Upgrade is a product worth looking at, but be sure to look hard at what APR you’re being offered. Otherwise, you could pile up more debt than you already had.