When it comes time to seek a home loan, many Australian borrowers are wary of non-bank lenders. This might be because we’re used to seeking financing from banks that we know and trust. It might be because we don’t really understand the differences between a bank and non-bank lender. And it might be because we equate non-bank lenders with risky loans or low-quality borrowers.

But if you’re not considering non-bank lenders as a borrower, you might be missing out on some great, affordable loan options.

What is a non-bank lender?

Non-bank lenders are accurately – if not creatively – named. They are simply lenders that are not banks. They are also sometimes referred to as ‘specialist lenders’.

But to get more specific, non-bank lenders are financial organisations that are permitted to loan money for home loans and other financing purposes. They have their own source of funds, and they lend those funds out to consumers with an added margin (which drives their profit).

However, unlike banks, they cannot accept deposits. Additionally, unlike banks they do not offer savings or checking accounts or any type of term deposit. Instead, they are focused only on the lending side of the financial ledger.

Often non-bank lenders are organisations like insurance companies, fund managers and wholesale funders.

What’s are the main differences between banks and non-bank lenders?

There are quite a few differences between traditional banks and non-bank lenders. The thing that stands out the most for home loan borrowers is that banks can take deposits, whereas non-bank lenders cannot. However, the most important difference is the way they are regulated.

Some of the main differences between bank and non-bank lenders include:

	Bank Lenders	Non-Bank Lenders
Loan money	Yes	Yes
Take deposits	Yes	No
Hold banking licences	Yes	No
Subject to NCCP	Yes	Yes
Publicly listed	Yes	Sometimes
Government guarantee eligible	Yes	No
Regulated by APRA	Yes	No
Regulated by ASIC	No	Yes
Restrictions on investor loan portfolio	Yes	No

How are non-bank lenders regulated?

As you can see in the table above, banks are regulated by The Australian Prudential Regulation Authority (APRA). However, non-bank lenders are regulated by the Australian Securities and Investment Commission (ASIC) under the National Consumer Credit Protection Act (NCCP).

Non-bank lenders are also required to have a credit licence, meet the requirements of Australian Consumer Law and Privacy Law, accurately disclose their rates and fees and meet the ePayments Code, which covers all consumer electronic payment transactions, including ATM, EFTPOS and credit card transactions, online payments, internet and mobile banking and BPAY. 

So, while non-bank lenders don’t hold banking licences, they are still heavily regulated by Australian government agencies.

What are the benefits to choosing a non-bank lender for your home loan?

1. Non-bank lenders can sometimes offer lower interest rates. Because they borrow funds at wholesale rates, they can pass those savings onto consumers.
2. Non-bank lenders have a higher risk tolerance. While banks avoid lending to ‘risky’ borrowers, non-bank lenders often welcome them. These loans may be more expensive than other mortgages, but they give credit-impaired borrowers a path towards home ownership.
3. Smaller institutions mean more personal assessments. Because non-bank lenders are often smaller than banks, your loan application will likely be reviewed by a person rather than a system. That means you may have more wiggle room in terms of lending requirements.
4. Self-employed borrowers may find it easier to borrow from non-bank lenders. If you are self-employed people you may sometimes have a hard time proving steady employment or income well enough for bank standards. But non-bank lenders are more flexible and will often provide a loan product to suit your employment status.
5. Non-bank lenders are safe and secure. Non-bank lenders don’t hold banking licences, but they are subject to robust regulation and oversight, which means that non-bank lenders are a very safe option here in Australia.
6. Borrowers can apply after being rejected by a bank. Non-bank lenders are in a better position to help higher-risk borrowers, even those that have already been rejected by a traditional bank.
7. Non-bank lenders give you a choice of loan products. Non-bank lenders offer almost everything that bank lenders can, including fixed, variable and split rate loans, as well as mortgages. They also allow for extra repayments and will allow you to redraw funds, just as bank lenders do.

Try a non-bank lender today.

Non-bank lenders have a great deal to offer borrowers today – so don’t just limit yourself to banks. Embrace the whole suite of potential lenders and you just might find yourself with a better loan product at a better rate!

At Lending Loop we’ve helped thousands of Australians access home loans from both banks and non-bank lenders alike. We’re here to help you with advice, insight and info, so if you’re ready to get started, get in touch!