Non-Bank Lenders: How Do They Work?

Tony Xia

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Non-bank lenders can be a great alternative to traditional banks when your situation is a little out of the box and you need a lender that is more lenient than your mainstream lenders.

Here’s everything you need to know about non-bank lenders in Australia, so that you can make an informed decision about whether going the less traditional route could work for you or not.

Why Would Someone Use a Non-Bank Lender?

Non-banks are often popular amongst non-conforming borrowers, such as those who are self-employed who are not up to date with their financials or credit impaired, or even those who don’t have any proof of savings. A traditional bank generally turns down an applicant for a home loan because they do not tick the usual boxes.

For example:

Libby is a self-employed freelancer that gets paid on an ad-hoc basis. Because her income is erratic and she doesn’t have substantial evidence of her PAYG statements, her bank rejects her home loan application.

Libby wasn’t discouraged and decided to apply for a low doc home loan because she knew she had enough money to honour her mortgage repayments. When her grandparents passed away, they left her a large inheritance she could use for a 20% deposit which still didn’t get her over the line with a major lender.

The benefit of going to a non-bank to borrow money is that they take a more personal approach to home loans, car loans and personal loans. They consider all aspects of your financial circumstances instead of applying blanket rules to all borrowers.

Here are two other reasons why borrowers may prefer to choose non-banks over the traditional, big banks:

They look at applications that are out of the box in comparison to your traditional mainstream lenders.
Have various ways to prove income.

Are Non-Bank Loans Trustworthy?

Non-traditional lenders constitute a significant part of Australia’s home loan market. They lend billions of dollars towards home loans every year.

They have an Australian credit licence and are considered perfectly trustworthy home loan providers, and they drive competition in the mortgage market. A non-bank lender also offers borrowers alternative home loan options and, like with Libby, a chance they might not otherwise have had of being approved for a home loan.

Many people feel safer acquiring their home loans from a traditional bank because they are subject to rules, regulations, and government scrutiny. They are also regulated by the Australian Prudential Regulatory Authority (APRA), which oversees those providing financial or tax advice.

However, non-bank lenders are also required to comply with intensive legal and industry codes, such as:

National Consumer Credit Code
ASIC laws
The ePayments Code
Australian Consumer Law
Privacy Law

Both banks and non-banks must comply with the same consumer credit rules and regulations. Applications for home loans only receive approval on the condition that the applicant satisfies the loan suitability criteria and credit assessment requirements.

What Products Are Available With Home Loans From Non-Banks?

Although non-banks may offer more flexible products than major banks, they cannot provide all banking products. For example, alternative lenders can’t offer you checking or savings accounts.

This means you probably won’t be able to do all your banking in one place.

Most non-banks offer:

Borrowers have a choice between:

Fixed or variable interest rates
Interest-only or principal and interest repayments
Offset accounts and redraw facilities

Is Using a Non-Bank Right for You?

Choosing between a bank or a non-bank lender will depend on which one can provide the best options to suit your circumstances.

You can evaluate whether they offer what you require and provide good value for money.

You should certainly consider non-bank lending if you:

Have a bad credit history
Have been declined a home loan by a traditional lender
Have a high debt-to-income ratio
Are you self-employed or have irregular income

If you’re unsure, consult a mortgage broker to help you make an informed decision.

How a Mortgage Broker Can Help

Before making financial decisions that you could possibly regret, it’s always a good idea to seek professional advice.

Mortgage brokers are highly trained and qualified professionals who assess your individual situation and financial circumstances to determine your needs. This way, they can recommend the best and most appropriate lending specialists based on your situation.

They will consider the lending criteria of each possible credit provider, and whether you meet the requirements, and if your application is likely to be successful. They won’t advise higher-risk borrowers to do the same thing as prime borrowers.

Non-bank lenders offer a range of home loans with easier-to-reach loan eligibility criteria, making them a popular option among non-conforming borrowers.

The other main benefits of choosing a non-bank lender are that they generally offer lower interest rates and ongoing fees, as well as better customer service than a traditional financial institution.

Each alternative lender is highly regulated and required to comply with intensive legal and industry codes, just like banks are. Therefore, borrowers can feel confident that should they go bust, it won’t influence their home loan in any way.

If you’re considering using an alternative lender, The Mortgage Agency has mortgage brokers who can assist you with this important financial decision.

From a personal loan to an investment loan, our team can explain all the options available to you and help you prepare your loan application. Contact us today to get started.

Disclaimer:

Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.

About Tony Xia

Having worked in the customer service and finance industry since 2011, our Director Tony Xia and his team’s highest priority is to cultivate a long-lasting relationship with clients based on trust and respect at The Mortgage Agency.