Private credit lender Castlelake will buy up to $1.2 billion in consumer installment loans from fintech firm Upstart (UPST.O), to expand its foothold in the retail lending space, it said on Thursday.
The deal underscores how investment firms are increasingly pushing into businesses that have traditionally been dominated by banks as high interest rates and the fear of defaults force lenders to hesitate.
The private lenders, unlike banks, operate under relatively lenient regulation and are more open to financing risky loans.
Castlelake was founded in 2005 and manages assets worth nearly $22 billion on behalf of over 200 institutional investors. In May last year, the lender clinched a similar agreement, to buy loans of about $4 billion from Upstart.
The Minneapolis, Minnesota-based company has been steadily building up its consumer lending prowess by partnering with fintechs. In October, it agreed to provide, $200 million to finance Oportun Financial’s (OPRT.O), personal loans.
In May, Canadian giant Brookfield Asset Management (BAM.TO), invested $1.5 billion in Castlelake to acquire a 51% stake in its fee-related earnings.
Upstart serves as an intermediary between borrowers and lenders. More than a 100 banks and credit unions use its platform to approve loans to customers.
The company’s primary source of revenue is the fees it receives from banks and investors for using its platform. So far this year, Upstart shares have lost close to half their value.
