Getting a home loan means looking at more than just the big banks. You also have credit unions and building societies. But have you thought about non-bank lenders? They have become a really popular choice, especially for people who don’t fit the perfect profile that traditional banks often look for. Borrowers with past financial challenges often explore these options alongside broader bad credit lending strategies to improve their chances of approval.
A non-bank lender is a financial company that offers loans, but it isn’t a bank. This difference is key for a few reasons:
- They don’t have an Australian Banking Licence.
- They can’t accept deposits from the public like a bank does.
- They aren’t mutual organisations like some building societies.
Instead of using customer deposits, they get their funds from other sources. They then lend this money to borrowers. Because they can’t take deposits, you won’t get an everyday transaction account with them. You might get a redraw facility on your home loan, but features like offset accounts are usually not available.
How Are They Regulated Differently?
This is the most important distinction. Traditional banks are regulated by two main bodies: APRA and ASIC. This is because they hold your savings and need strict oversight.
Non-bank lenders, however, are only regulated by ASIC. Since they don’t handle public deposits, their rules are different. This different rulebook actually gives them more flexibility, which can be a big advantage for some borrowers with bad credit history or those seeking solutions outside standard lending models, such as non-conforming loan structures.
The Benefits of Choosing a Non-Bank Lender
Why would you go with a non-bank lender?
You Might Get a Sharper Interest Rate
Without the overheads of running a big bank, non-bank lenders can often offer very competitive interest rates. Over the life of your loan, a slightly lower rate can save you a noticeable amount of money, particularly when comparing bad credit loans to traditional bank lending.
Lower Fees
Many people find that non-bank lenders charge lower upfront and ongoing fees. This makes the overall cost of borrowing with them more affordable.
They Welcome Complex Situations
This is their specialty. Are you self-employed? Do you have an unusual income structure? or do you have a low credit score?
Traditional banks might see this as too risky. Non-bank lenders, with their more flexible approach, are often happy to look at your individual situation.
Faster Approvals
Most non-bank lenders operate mainly online. This often leads to a much faster and more streamlined application process.
What Are the Potential Downsides?
Of course, it’s not all perfect. There are some trade-offs to consider.
Fewer Bells and Whistles
Don’t expect an offset account or a package deal with a credit card. Their product range is focused on lending, and that’s about it.
Interest Rates Can Be Variable
Be prepared for your interest rate to move. Some non-bank lenders charge higher interest rates than the mainstream banks.
Who Are Non-Bank Lenders Best For?
So, when does it make the most sense to consider this path? Let’s picture a few common situations.
Meet Sarah, a freelance graphic designer. Her income changes every month. She has great clients and makes good money, but her tax returns show a lot of deductions. A major bank looked at her application and said no. A non-bank lender, however, was willing to use her bank statements to get a real picture of her cash flow. They approved her for a low-doc loan, making her dream of buying a studio apartment possible.
Then there’s Ben and Priya. They are savvy investors who have built a small property portfolio. Their local bank told them they couldn’t borrow any more money due to the bank’s internal limits on multiple properties. A non-bank lender specialising in investors looked at their equity and the rental income from their existing properties. They were able to structure a new loan that allowed the couple to purchase their next investment.
These stories show that non-bank lenders are not just a last resort. For many, they are the smartest way forward.
How to Pick a Good Non-Bank Lender
Doing your homework is crucial. Here’s what to look for:
- Reputation: How long have they been around? What are other borrowers saying?
- Loan Terms: Scrutinise the interest rate, fees, and repayment flexibility.
- The Right Fit: Does this lender actually specialise in loans for someone in your situation?
- Regulation: Always confirm they are licensed and regulated by ASIC.
The Bottom Line
Non-bank lenders provide a credible alternative to traditional banks, offering competitive rates and flexibility for borrowers with unique financial situations. While they may lack some banking features, their tailored approach can make home ownership or property investment achievable when conventional banks cannot accommodate the borrower’s circumstances.
Exploring these lenders early in your journey, potentially with support from a mortgage broker, can streamline the path to securing the right home loan.