In a Nutshell: Providing merit-based personal loans and student debt refinancing, Earnest takes a modern approach when compared with the traditional credit-based system of lending. The San Francisco-based company looks at savings history and career trajectory, giving these factors more weight when determining creditworthiness. Through its Precision Pricing® model, Earnest offers personalized loan terms ranging from five to 20 years, with more than 180 options total. Its rigorous-but-fair underwriting policies result in fewer write-offs and competitive interest rates.
Historically, securing a loan always involved the same process. You’d sit in front of a banker, trying not to wriggle in your seat while you recited a rehearsed excuse for why a car payment was two days late three years ago. The banker would then look at your credit score, which could either make or break your plans. After some back and forth, judgment was passed, and you’d leave the bank with your tail between your legs, whether you were approved or denied.
Today, thanks to advances in financial technology, loan processes are catching up to the modern era. One such company that typifies this contemporary approach is Earnest, a San Francisco-based lender created by people who were eager to enact change in the industry. Relying on a team of dozens of data scientists, engineers, and designers, the company combined the strengths of its team members to create a unique lending model that prioritizes a person’s potential over traditional lending criteria.
Earnest issues merit-based loans, instead of traditional credit-based ones, that look at more than just a person’s credit history — which has been a boon for those with new or mid-prime credit.
The company doesn’t stop at the basics of a credit score, but takes into account several factors often overlooked in a basic loan application, like career trajectory and savings habits. As a result, applicants can refinance unsecured student loan debt or obtain personal loans at low rates.
The company found its niche extending loans to “financially responsible applicants with promising careers.” The application process is thorough, taking a lot of data into account to make a lending decision. The result is fewer loan write-offs, which allows Earnest to extend more loans — a win for both lender and borrower.
According to Earnest’s site, its customers have saved an average of $21,810 when refinancing student debt through the platform.
Precision Pricing™ Offers 180 Options to Make Your Payments More Affordable
Many lenders take your credit score and the amount you can afford to repay each month, enter the numbers into an algorithm, and come back to you with a take-it-or-leave-it loan offer based on their terms and rates. Earnest does away with this system, offering 180 different loan-term options through its Precision Pricing model.
Let’s say you want to refinance a large amount of student debt and can afford monthly payments of $1,000. Earnest can take that number and fit it into a custom-made term that isn’t reliant on a typical schedule. For example, $1,000 a month over a 10.5-year term — a loan length unavailable through most banks — would pay off a $100,000 refinance loan.
Through a traditional lender, the loan wouldn’t fit into its typical packages and would have to be extended to 11 years, as the terms are usually grouped into 12-month increments. With an 11-year loan, as opposed to 10.5 years, you’d have a slightly smaller monthly bill, but end up paying more over the life of the loan.
Earnest’s loans are available at monthly intervals, from 5-20 years. Want a 7-year, 3-month loan? It can be done through Precision Pricing. You can also switch between fixed and variable rates, at no cost, while keeping the same servicer.
Earnest Modernizes Lending Through a Combination of Technology and Service
Among Earnest’s offering are refinancing plans for an unsecured student loan or Parent Plus loan, both with variable rates that are competitive in the space. Qualified borrowers can also take up to $50,000 in personal loans with a fixed APR starting at 5.25%.
But what makes a qualified borrower? Earnest has a list of must-haves for applicants, but the company has fewer requirements than most lenders. A minimum credit score of 660 is required for all loans — considered to be a “fair” score through most bank standards today. You must also be 18 or older and an American citizen, although Earnest currently does not offer loans for residents of Alabama, Delaware, Kentucky, Mississippi, Nevada, or Rhode Island.
Other requirements include being currently employed (or having a letter offering a paid position of employment) and having all of your existing loans in good standing, with no bankruptcies or recent collections on your record.
The factors looked at by the company to determine creditworthiness go beyond this list, as well. Do you have enough savings to cover two months of necessary expenses, including housing? Do you spend less than you earn? Do you carry only small amounts of non-student debt? If you answer yes to these questions, then you may qualify.
Earnest takes into account your overall spending and savings habits to get a clearer picture of your financial future. Actions, like contributing to a qualified 401(k) or retirement plan, or having a small nest egg for your future, aren’t looked at in many loan applications, but will earn you extra credit with Earnest’s model.
Plan For Today and Tomorrow with Earnest’s Resources for Financial Health
Earnest understands that not every young person or recent college graduate has a sterling credit history, but it feels that this shouldn’t disqualify these borrowers from the savings usually reserved for top earners. The company doesn’t charge for early payoff of your loans; in fact, it encourages doing so. Because each additional month of repayment means additional interest fees, paying off your debt early will minimize the amount you’ll pay in interest over the life of the loan.
Additionally, the company knows that just because you have your degree, doesn’t mean you’re done learning. Its regularly updated blog is a treasure trove of financial information for young professionals just starting out (where else can you learn how to eat for $50 a week at Trader Joe’s?). Topics span from saving and spending wisely to investing and paying off debt faster.
Earnest’s Guide to Decision Making is also a bookmark-worthy tool that offers mini-lessons on the mental obstacles so many of us encounter while dealing with our finances. From sunk-cost fallacy to herd mentality, these guides can not only inform you, but offer a perspective on some of your own behaviors that you may not be aware of. Reading through all of the sections was an eye-opener for me, and it probably will be for you, too.
Get the Credit You Deserve for the Life You’re Building
Although your credit may be considered mid-prime, or you may just be starting out with little information on your credit report, your actions to secure your financial future can speak much louder to your creditworthiness than your three-digit credit score. The team at Earnest realized this and used it to build a company that does away with the aging credit-based system of lending.
To Earnest, actions that show you’re laying the foundation for a strong financial future are more important than that time you forgot your due date was approaching and missed a payment. Its merit-based system rewards responsibility, and the company promotes learning through the use of its blog and guides.
Perhaps one day the lending industry will follow suit and make lower rates and fewer write-offs a thing of the future. But for Earnest’s customers, that future is now.