Non-Bank Lenders
Non-bank home loan lenders offer great deals for everyone, not just the credit-impaired. Compare your options with Savvy.
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If you’re shopping for a home loan, consider using a non-bank lender. They’re safe, easy to deal with, and offer some great mortgage deals. In this article, we discuss what non-bank lenders are and how they compare to the major banks. We look at the upsides and downsides to help you decide which lender is best for you.
What is a non-bank lender?
The simplest way to describe a non-bank lender is it’s an organisation that can loan money but can’t accept deposits. This means they don’t offer products like savings accounts or term deposits.
Examples of non-bank lenders include insurance companies that lend funds, intermediaries, fund managers, wholesale funders, and lenders that securitise funds.
Where do non-bank lenders get their money?
Traditional banks and credit unions use deposits and other income sources to fund the loans they issue. They are heavily regulated to ensure that their customers’ deposits stay safe and that the bank is not taking too many risks with people’s savings.
Non-bank lenders, on the other hand, don’t have access to deposits and are forced to get all their funding from the wholesale money market, private investors and large organisations. Because they are not regulated in the same way, they can offer loans to people who would otherwise be rejected by the more cautious banks.
Are non-bank lenders safe?
Yes, they are. Though non-bank lenders don’t hold banking licences, they are still subject to the National Consumer Credit Protection Act (NCCP). They must have a credit licence, disclose rates and fees accurately, and they are overseen by ASIC. The Australian Consumer Law, Privacy Law and the ePayments Code also apply.
Since non-bank lenders don’t take deposits, they are not covered by the $250K government guarantee. However, it’s important to remember that, as a borrower, you aren’t giving the lender any money, so if the lender goes bust, you won’t lose anything. Most of the time, your mortgage will simply be bought out by another lender, and your contract and repayments will remain unchanged.
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What’s the difference between a bank and a non-bank lender?
Public listing
The major banks are owned by shareholders. Many non-bank lenders are not publicly listed at all.
Size
Non-bank lenders tend to be smaller than banks.
Government guarantee eligibility
All Authorised Deposit-taking Institutions (ADIs) are covered by a government guarantee. This means banks and credit unions are covered, but non-bank lenders are not since they aren’t ADIs.
Calculation methods
ADIs are regulated by APRA, and they have some specific rules when it comes to calculating how much they can lend you and what your repayments will be. Non-bank lenders, on the other hand, are regulated by ASIC and have a bit more flexibility when it comes to assessing your application and what they can lend too. For example, bank have restrictions on how many investor loans can be in their portfolio whereas non-banks do not have that same requirement.
Credit-impaired products
Unlike the banks, which avoid lending to risky borrowers, some non-bank lenders actively welcome people with low credit scores. They have products that are specifically designed for credit-impaired borrowers. It’s worth noting that these products are usually significantly more expensive than the other mortgages they offer.
Pros and cons of non-bank lenders
PROS
Good service
Many people who have had a bad experience with a major bank turn to non-bank lenders because they have excellent customer service.
Competitive rates
Because non-bank lenders obtain funds at wholesale prices, they are able to offer their customers competitive interest rates.
Low fees
Since non-bank lenders mostly operate online, they have few brick-and-mortar overheads, which keeps their fees low.
Efficient
Because non-bank lenders are usually smaller than the banks, they don’t have layers of bureaucracy. They can process applications quickly and efficiently.
Flexible
When it comes to approving your loan application, non-bank lenders are much more flexible than banks. If you have a low credit rating, or a non-regular income source, you may want to consider a non-bank lender.
CONS
Fewer rate reduction
Non-bank lenders use a mix of private and banking funds. For this reason, they can’t always pass on a decrease in interest rates to their customers. If you want a variable rate so you can take advantage of upcoming rate decreases, then you may want to consider borrowing from a bank.
Limited services
Banks can take care of all your deposit and borrowing needs and operate as a one-stop-shop. Non-bank lenders, on the other hand, don’t offer the same range of products.
No physical branches
Many Non-bank lenders don’t have shop fronts at all. They simply do all their business online or over the phone. Some have a limited number of physical offices where you can go in and speak to a lender face-to-face, but you may have to go out of your way. If you prefer to do your banking in person, you may want to stick with a major bank that has branches everywhere.
