Much like it does already with personal loans, Earnest looks at a wide range of data including income, employment history, asset accounts, and other debts in order to price loans.
Its personal loan rates are relatively low, from 4.25% to 9.25% for loans up to $30,000, while its student loan refinancing rates are even lower, 1.92% to7.5%. Beryl says that the reason they are able to make such cheap loans is because they have software do the underwriting, along with no traditional bank costs, like scores of loan officers, brick-and-mortar locations, or sponsorship of sports stadiums.
Many student lenders pass on loans to investors and then they are collected and serviced by third parties.
Earnest keeps servicing in house and offers a variety of features that let borrowers adjust their loans by paying early, extending the term, skipping a payment, delaying or increasing the frequency of payments, with the cost or benefit of more or less interest payment easily displayed online.
“We still have zero loans in default, we don’t have a single loan indelinquency.”
Earnest is just one of many quickly growing companies from outside the traditional banking system that are offering personal loans directly to consumers.
Traditional banks fund their loans through a combination of selling stock and borrowing money through products like CDs. Other online lenders sell loans to investors, while Earnest funds itself through credit facilities and raising equity from venture capitalists.