Non-Bank Lenders
Banks vs Non-Banks

Non-Bank Lenders

Bank vs Non-Bank Lenders

What is a non-bank lender?

Non-bank lenders are lenders who;

  • Do not hold an Australian Banking Licence
  • Aren’t an authorised deposit-taking institution (ADI)
  • Not a mutual i.e. they are not a bank, a building society or a credit union.

A true non-bank lender is one who sources their own funding and then lends out their funds making a margin on the difference.

Typically speaking non-bank lenders cannot offer transaction accounts, and can only offer redraw facilities on your home loan. This is due to them not being an authorised deposit-taking institution.

The key difference between banks and non-bank lenders is their ability to accept deposits and who their ultimate regulatory body is. Banks, building societies and credit unions are called ADI’s or Authorised Deposit Institutions. They are regulated by Australia’s Prudential Regulatory Authority (APRA) for short and ASIC. Non-banks on the other hand are not legislated to accept deposits from consumers and are regulated solely by ASIC (the Australian Securities and Investments Commission).

What are the Pros & Cons of Non-Bank lenders?

Pros

  • Non-bank lenders typically can offer more attractive home loan rates compared to traditional bank lenders, as they don’t have the overheads that come with banks
  • Typically lower upfront fees and ongoing fees (depending on your circumstances)
  • Most commonly, solely online (or have limited branch presence)
  • Due to regulation, non-bank lenders can offer complex lending solutions that wouldn’t make it through the red tape with traditional lenders. This is especially beneficial for investors facing major roadblocks in growing their portfolio

Cons

  • Typically cannot offer offset accounts and less product features (credit cards, insurance discounts etc)
  • Interest rates can fluctuate
  • Though unlikely, during extreme economic conditions, non-bank lenders funding sources can get cut-off, or dry up quite quickly. This may mean the lender has to increase your rate or sell your loan to another lender. In fairness, this could happen with any lender, but it seems more unlikely to happen to a major bank.

It should be noted that each non-bank lender competes in its own space, and has its own target market.

For example;

La Trobe Financial offers simple lending solutions for complex borrowers (self-employed, multiple investment properties, etc). As a first homeowner, you wouldn’t necessarily require this.
Athena Home Loans target market is simple borrowers, and typically speaking, cannot offer tailored lending solutions.

Can I borrow more with Non-Banks?

The short answer to this question is yes. Non-bank lenders aren’t regulated in the same way that normal bank lenders are. If you are looking at starting a property portfolio or wanting to add to your existing property portfolio, you may run into red tape with normal bank lenders, meaning, your only solution is to seek funding from a non-bank lender.

Low-Doc Loans

Some non-bank lenders also offer low-doc loans to borrowers who are self-employed. Low-doc loans are great for self-employed borrowers who have complex income structures, as typically speaking, they only require a letter from your accountant confirming your annual income.

So is it worth considering a non-bank lender?

Depending on your financial circumstances, you may need to source funding from a non-bank lender as this may be your only choice.

If you are intending to hold large amounts of money with this institution, be mindful that these lenders aren’t authorised deposit-taking institutions, so there are some risks involved.

Mortgage Choice deals with reputable non-bank lenders, so please contact us to discuss your plans and what suits you the best!