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.
Your home loan options
Making your first big step towards buying a home? It's crucial to be across your mortgage options as a first homebuyer.
Opting for a variable interest rate on your home loan means it'll fluctuate as the market moves throughout your repayment term.
On the other hand, fixing your rate locks it in for a pre-defined period. This can bring with it greater certainty around your budget.
It's important not to set and forget when it comes to your home loan. If you find a more competitive offer, it may be worth refinancing.
If you're looking to build a new house, construction loans are specifically designed to cater to the different needs associated with doing so.
A guarantor essentially acts as a safety net for your lender, as they sign onto your loan to agree to pay it off should you become unable to do so.
Purchasing a property as an investment brings with it different specifications from a lender. It's crucial to know what your options are.
Businesses big or small may wish to purchase a property for commercial purposes, which are also different from a standard loan.
Your home loan may give you an interest-only option, which allows you to exclusively pay interest on your loan for a set period.
Just because your finances may be slightly more complicated as a self-employed individual doesn't mean you can't take out a home loan.
Some lenders may allow you to apply for a home loan with alternative documents, such as tax returns, BAS and ABN registration.
Why compare home loans with Savvy?
What’s the difference between a bank and a non-bank lender?
The major banks are owned by shareholders. Many non-bank lenders are not publicly listed at all.
Pros and cons of non-bank lenders
Many people who have had a bad experience with a major bank turn to non-bank lenders because they have excellent customer service.
Because non-bank lenders obtain funds at wholesale prices, they are able to offer their customers competitive interest rates.
Since non-bank lenders mostly operate online, they have few brick-and-mortar overheads, which keeps their fees low.
Because non-bank lenders are usually smaller than the banks, they don’t have layers of bureaucracy. They can process applications quickly and efficiently.
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.
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.
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.