Photographer: Daniel Acker/Bloomberg, Photo Illustration by Tom Hall/Bloomberg

Earnest Raises $17 Million to Provide Low-Cost Online Loans

Earnest Inc. raised $17 million in a financing led by venture capital firm Maveron, as the financial-technology startup explores the development of new online products including car loans and home loans.

As part of the funding announcement, the San Francisco-based company said it is also releasing an online student loan refinancing product. Earnest, which already offers personal loans and bills itself as a low-cost lender, has raised more than $20 million in equity and an undisclosed amount of debt to provide online borrowing.

“We’re building the modern bank for the next generation,” said Earnest Chief Executive Officer Louis Beryl, a former partner at Andreessen Horowitz and commodities trader at Lehman Brothers. He declined to disclose the company’s valuation.

Earnest is part of a wave of financial-technology startups specializing in areas including peer-to-peer lending and mobile payments that are challenging banks and credit card companies. Wealthfront Inc., an online financial advisory firm, and Betterment LLC, an online investment company, have raised money to expand their businesses in the last year.

Last month, peer-to-peer lender LendingClub Corp. went public at $15 a share and soared 56 percent on its debut. The company closed at $19.99 in New York on Monday, up 33 percent from its initial public offering price.

Earnest’s Rates

Earnest, founded in 2013, lets customers renegotiate their loan repayment amount and interest rates for existing loans online. Its new student loan refinancing product will offer interest rates at as low as 1.92 percent annually. By contrast, Citizens Bank offers student loan refinancing with an annual percentage rate as low as 2.32 percent.

Earnest said it can provide lower rates than banks because it takes on less risk with its borrowers. The company analyzes data beyond traditional consumer credit scores -- such as the amount of money people have in their retirement or savings accounts and the type of education they have -- to evaluate customers and to offer better rates to those who it deems are more credit worthy and less likely to default.

Rates are also lower because Earnest’s infrastructure is online and more streamlined than that of large financial institutions, the company said on its website.

Andreessen Horowitz, First Round Capital and other Silicon Valley venture firms previously invested in Earnest. Bloomberg LP, the parent of Bloomberg News, is an investor in Andreessen Horowitz.

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