As the financial landscape in Australia evolves, more borrowers are turning to non-bank lenders for their financial needs. Non-bank lenders offer a range of services and benefits that differ from traditional banks, making them an attractive option for many Australians. However, with this growing interest comes a host of questions. Here, we address some of the most common questions asked about non-bank lending solutions in Australia.
What is a Non-Bank Lender?
A non-bank lender in Australia is a financial institution that provides loans and credit products but does not hold a banking license. Unlike traditional banks, non-bank lenders do not take deposits from customers. Instead, they fund their lending activities through alternative sources such as wholesale funding, securitisation, and other financial instruments. These lenders, sometimes also referred to as “specialist lenders,” may specialise in niche markets or cater to borrowers who might not meet the stringent criteria of traditional banks, making them an attractive option for borrowers with unique financial situations.
Non-Bank Lenders offer a range of competitive Full Doc, Alt Doc and Construction loan products available to Prime and Near Prime, Resident and Non-Resident borrowers.
How Do Non-Bank Lenders Differ from Traditional Banks?
Primary differences between non-bank lenders and traditional banks in Australia:
Deposit Services
- Offer savings and checking accounts
- Do not offer savings or checking accounts
License Type
- Hold banking licenses
- Typically hold an Australian Credit Licence (ACL) issued by the Australian Securities and Investments Commission (ASIC).
Source of Funds
- The primary source of funds for banks is customer deposits, including savings accounts, checking accounts, and fixed deposits.
- Wholesale funding, securitisation, institutional investors, private equity, and other debt instruments.
Regulatory Oversight
- Regulated by the Australian Prudential Regulation Authority (APRA)
- Regulated by ASIC and the National Consumer Credit Protection Act (NCCP)
Process and Product
- Generally have stricter lending criteria and comprehensive assessment processes, more standardised products with limited customisation, and slower approval processes.
- Generally have more flexible lending criteria and tailored loan products, catering to borrowers with non-standard financial situations. Approval processes are typically faster due to streamlined operations and procedures.
Typical Borrowers
- Borrowers with stable financial situations and strong credit histories, often seeking traditional loan products and don’t mind comprehensive paperwork requirements.
- A diverse range of borrowers, including those with non-standard financial situations, self-employed business owners, freelancers, borrowers with multiple or foreign income, and those seeking more customised loan products with potentially less paperwork.
Borrowing Capacity
- Borrowing limits can be more restrictive due to regulatory constraints such as DTI requirements, often resulting in lower borrowing capacity for some borrowers.
- Generally offer more flexible borrowing limits, i.e., higher borrowing capacity, particularly for those with unique income structures or assets.
What Are the Advantages of Choosing a Non-Bank Lender?
- Flexible Lending and Diverse Borrower Types: Non-bank lenders often cater to borrowers with non-standard financial situations, including self-employed individuals, freelancers, and those with multiple income sources.
- Higher Borrowing Capacity: Non-bank lenders generally offer more flexible borrowing limits, particularly for borrowers with unique income structures or assets, as they are less constrained by traditional regulatory requirements.
- Innovative Solutions: Non-bank lenders offer tailored rather than standardised loan products, such as Alt Doc loans designed to consider alternative income verification methods, accommodating fluctuating income and unique financial documentation requirements.
- Customer Service: Some non-bank lenders leverage technology to offer streamlined and efficient loan application processes, often resulting in faster approvals and more convenient borrowing experiences.
Tailored Loan Options for Diverse Borrowers
Non-bank lenders offer a variety of customised loan solutions to meet the unique financial needs of diverse borrowers, providing a flexible and accessible alternative to traditional bank loans. Here’s how they cater to different profiles:
- Self-Employed Individuals: Flexible loan solutions that consider alternative income verification methods, accommodating fluctuating income and irregular cash flows, making it easier for business owners and freelancers to secure finance.
- PAYG Employees: Loan products with higher borrowing capacity and faster approval times, leveraging stable income earners and straightforward documentation to streamline the lending process.
- Investors: Comprehensive loan products designed to support both residential and commercial property investors, with features like competitive interest-only loans, flexible repayment options, and tailored financing solutions to maximise investment returns.
- Expats, Temporary Residents, and Non-Residents: Specialised lending options that address the complexities of various residency statuses and foreign income, ensuring accessible financing for personal and investment needs.
Summary – as a broker, we look at all options – Bank and non-bank based on need and your individual circumstance.Rates can be lower than traditional lenders for individuals with good credit history.
