The rewards are not as lucrative as certain cash back cards, but the Upgrade Card’s low interest rates make it an attractive option for cardholders looking to finance a large purchase.
There’s always a lot of demand for predictable, low-rate financing.
But it has become much harder to obtain because most lenders are particularly risk-averse due to the economic uncertainty following the coronavirus pandemic.
A good example has been the pullback in 0% balance transfer offers. Many have been pulled from the market entirely. Those that remain are typically more selective about credit quality and are extending lower credit limits. Something similar is happening in the personal loans space.
This is creating an opportunity for startups to gain a share of the market. One such example is Upgrade, Inc., a four-year-old company that got its start in personal loans and expanded to credit cards late last year. Upgrade’s founders – headlined by CEO Renaud Laplanche – previously achieved great success at LendingClub, where they basically invented the peer-to-peer personal loans category.
Laplanche, Upgrade’s CEO, told me that his company’s customers are generally “not facing any particular issue with their credit. They are switching to Upgrade to get more value and a more responsible product.” He noted their average age is 42, their average FICO score is 710 and their average household income is a whopping $135,000 (more than double the national average).
Upgrade offers personal loans up to $35,000 as well as the Upgrade Visa® Card with Cash Rewards, which marries the personal loan concept with a credit card. Accepted anywhere that takes Visa, the Upgrade Card has credit lines ranging from $500 to $20,000 with potentially low interest rates (they start at 8.99%, though the high end stretches all the way up to 29.99%). It has no other fees.
If you can qualify for the 8.99% APR, that’s one of the lowest credit card rates on the market. The average credit card currently charges about 16% for cardholders with excellent credit.
Another benefit of the Upgrade Card is the fixed term for paying off each purchase or personal loan (24 to 60 months). Many borrowers crave this predictability. That’s particularly true for young adults who often have considerable student loan burdens and are fearful of taking on more debt. The fixed term keeps a lid on the total interest expense, too.
The card’s fixed term option could be beneficial for anyone wishing to pay off a large purchase. You might be able to secure an APR well below average with a known payoff date. There is no penalty if you pay off the debt early. Upgrade also just added 1.5% cash back rewards to every purchase, which are distributed as cardholders pay off their purchases – an added incentive to get out of debt sooner.
Alternatives to the Upgrade Card
The average personal loan charges approximately 12%, according to our sister site Bankrate.com. Like Upgrade, many other lenders have wide ranges. For those with good credit, personal loans have pros such as low interest rates and a predictable payback period (often 2-5 years, sometimes a bit longer). Plus, they’re unsecured debt, so you’re not putting an asset (e.g., your home) on the line.
If you secure a loan with your home, the average rates are 4.52% for a home equity line of credit and 5.10% for a home equity loan. Again, you can do better if you have a strong credit score and you’ll receive a higher interest rate if your credit is lower. These are harder to qualify for than personal loans and credit cards, and they often include additional fees such as home appraisals.
The Upgrade Card’s closest competitors fall into two main categories: Buy now, pay later companies like Affirm and AfterPay, and installment credit card plans such as American Express Pay It Plan It® and Citi Flex Pay. If you need to carry a balance but nab one of Upgrade Card’s lower rates and can pay it off relatively quickly, it’s a respectable option. It’s less attractive at higher rates and longer terms.
Whether Upgrade Card is a valuable personal finance tool or an expensive way to live above your means depends largely on your individual account terms and how you use the card. It’s clearly for revolvers, not transactors.
If you can pay your credit card bills in full every month, you’re better off with a different rewards card. That could be a flat 2% cash back card like the Citi® Double Cash Card (which gives you 1% for each purchase and 1% when you pay it off), the Fidelity Rewards Visa Signature card or the PayPal Cash Back Mastercard. Or it could be a card that emphasizes certain categories and gives higher payouts for travel, groceries, dining or another area in which you spend a lot of money.
Still, I can see Upgrade’s appeal. You need to be careful, however. Any sort of debt can be a slippery slope. While the Upgrade Card’s interest rates can be low, they can also be high. The unfortunate irony with this and other offerings is that many of the people who need them the most aren’t able to qualify for the best terms.
According to Laplanche, a borrower with an average credit profile would likely pay 11-12% APR on their Upgrade Card. That’s lower than a lot of credit cards. I like the focus on paying it off relatively quickly as opposed to carrying an open-ended balance that could possibly drag on for decades, but it can still be expensive. Even if you pay it off in two years, a $5,000 balance at 11% APR incurs almost $600 in interest. That’s why you need to proceed with caution.
Have a question about credit cards? E-mail me at firstname.lastname@example.org and I’d be happy to help.