AI-based fintech Upstart grew its auto loan originations in the second quarter while halting its auto refinance business to focus on faster-growing parts of its portfolio.
Auto originations totaled $426 million, up 264.1% year over year and 62% quarter over quarter, according to the company’s Aug. 4 earnings presentation. The number of auto loans originated rose to 20,023 in Q2 compared with 5,058 a year prior and 12,202 in Q1.
“In auto retail, we continue to add rooftops and win wallet share,” Chief Executive Paul Gu said during the Aug. 4 earnings call. “We began optimizing our take rates, a clear sign this business has moved from proving demand to improving unit economics.”
Loans held on Upstart’s balance sheet totaled $1.1 billion in Q2, representing 5.9% of all outstanding loans, with most of the $18 billion book funded by third parties, according to the presentation. Auto loans totaled $338 million of loans held, down 13.1% YoY.
End of refi
Upstart ended its auto refinance business in Q2 because it did not have as much potential as other business lines in its portfolio, Gu said on the call.
“Ultimately, we looked at the growth rate of that business and its potential compared to everything else that we were doing … and we wanted to concentrate on the ones that had the highest velocity and the biggest upside,” he said. “That one didn’t make the cut.”
Upstart also in July received conditional approval from the Office of the Comptroller of the Currency for a bank charter, Gu said. The company plans to launch as an insured bank in early 2027 pending regulatory approvals, he noted.
Funding maneuvers, ABS deal
Upstart closed three institutional deals since its May earnings call for up to $5 billion in committed capacity, Gu said. In July, the fintech announced that Castlelake, a global alternative investment firm, will purchase up to $4 billion of consumer loans originated on Upstart’s platform for up to 24 months through a new forward-flow agreement.
“Upstart continues to shift its capital base toward committed capital partnerships, which now make up over half of its funding mix,” Managing Director John Hecht and other Jefferies analysts wrote in an Aug. 4 note.
Upstart also on June 26 issued its third asset-backed securitization (ABS) deal of the year, its largest since 2021 at the tightest spreads it’s seen in three years, Gu said. It has issued $1.3 billion year-to-date across three ABS transactions, according to CreditFlow, which monitors securities.
The $569.4 million deal included auto-secured personal loans, or consumer loans secured partially by vehicle titles, according to a July 2 Kroll Bond Rating Agency presale report.
Shares of Upstart Holdings Inc. [Nasdaq: UPST] were trading down 0.4% to $30.20 at the market close on Aug. 5. Upstart has a market capitalization of $2.9 billion.
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