The rise of non-bank lenders has made the Australian mortgage landscape more competitive, providing borrowers with more options that could help them realise their homeownership dreams. Are you preparing for your first home purchase? Or perhaps you are planning to get an investment property? Here are the things you should know about non-bank lenders in Australia.

  • What is a non-bank lender?
  • What do non-bank lenders offer for homebuyers?
  • What are the advantages of getting a home loan from a non-bank lender?
  • What are some of the drawbacks when applying to a non-bank lender?
  • Frequently asked questions about non-bank lenders

What is a non-bank lender?

A non-bank lender is a lender who is not a bank but can provide consumers with different types of loans like home loans, car loans, and credit cards. Non-bank lenders cannot accept consumer deposits (i.e. they can’t offer savings accounts or term deposits) because they do not have an authorized deposit-taking institution (ADI) licence from the Australian Prudential Regulation Authority (APRA), which means its functions are limited to just providing financing.

To provide loans, non-bank lenders self-raise the funds required to provide loans by issuing bonds to investors and institutions. Take note, however, that even though non-bank lenders do not have an ADI license, they must still have an Australian Credit Licence (ACL) and have to comply with the regulations set by the Australian Securities and Investments Commission (ASIC), and other laws such as the National Consumer Credit Protection Laws and the Australian Consumer Law.

What do non-bank lenders offer for homebuyers?

Non-bank lenders in Australia are a popular option among homebuyers who are trying to search for more competitive home loans. Just like banks, non-bank lenders offer owner-occupier and investor loans. However, because non-bank lenders don’t hold an ADI license, they can’t offer offset accounts in the traditional sense, although some non-bank lenders offer products that operate similarly to offset accounts.

Some non-bank lenders offer a wide range of housing loans including low-doc home loans and construction loans. Some non-bank lenders may vent provide line of credit home loans, guarantor loans, and bridging loans.

Advantages of getting a home loan from a non-bank lender

Transacting with a non-bank lender has its slew of benefits. Here are some advantages of getting a home loan from a non-bank lender

  • These lenders often offer more competitive interest rates than traditional banks given that they borrow their funds at wholesale prices.
  • Most non-bank lenders have lower ongoing fees. Some do not even charge other costs like setup fees.
  • Non-bank lenders usually have faster approval and turnaround times compared to traditional banks.
  • They are widely considered to be a safe and genuine competitor to traditional banks.
  • Online non-bank lenders can offer more personalised services.
  • Some non-bank lenders are more willing to lend to higher risk borrowers such as those who are self-employed. They can also be more accommodating of fluctuating credit history.

Disadvantages of using a non-bank lender

While non-bank lenders are a great alternative to traditional banks, there are some setbacks.

  • Many non-bank lenders do not have a full-suite of loan packages that most banks offer their customers. For instance, non-banks lenders will not be able to offer offset accounts because they don’t have an ADI.
  • Some non-banks offer limited home loan options and loan types. Others do not provide home loans to property investors.
  • Non-banks usually have limited physical presence — some do not even have branches, which means all services are done online.

Frequently asked questions about non-bank lenders

Non-bank lenders are not for everybody, but they are gaining traction among many borrowers who want an alternative to the traditional banks. Before you start exploring, here are the answers to the questions you might have about non-bank lenders.

Not at all — non-bank lenders offer home loans to all walks of life who wanted an alternative option. Non-banks usually have a different set of criteria, which allow applicants, who might have been turned down by a traditional bank, to be qualified for a home loan.

However, it is true that most of the time, non-bank lenders are able to accommodate borrowers with low credit score, high debt-to-income ratio or those who are self-employed.

Non-banks usually offer more competitive rates than traditional banks to lure in more customers. Given that some operate entirely online, they are able to reduce their costs and provide lower interest rates to potential borrowers.

Yes — similar to traditional banks, non-bank lenders still have to comply with credit rules and regulations. Some non-bank lenders are backed by Australian financial institutions. In the event that a non-bank lender closes, another lender will generally take over its client base. This means that if a non-bank lender goes bust, you will have to still service your mortgage debt under a new lender.

Non-bank lenders often depend on wholesale funds either from Australian banks or international institutions. They can also raise funds by issuing bonds to institutions and investors.

Non Bank Lenders

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