As the name suggests, a non-bank lender is not affiliated with any bank. This means they don’t hold a traditional banking license, but they also don’t come with the stigma some people associate with the big banks. Don’t worry though — they’re still legally allowed to take care of your finances, but they’re subject to different regulations than banks.
In essence, what this means is that they’re funded differently and that structural difference could just be the ticket you need to get you into your first home sooner!
Unlike banks that primarily source their funding from deposits, non-bank lenders have a range of funding sources. Most of these funding sources are from the wholesale money market. This generally leads to the savings going straight to the client and not into the pockets of some shareholder.
That’s a win for the little guy, especially when trying to find a way into the competitive housing market.
If you want the best possible home loan, don’t assume your current bank will just offer it out of kindness. Instead, spend time shopping around and compare different mortgage options and lenders.
Choosing a non-bank lender over a traditional bank can offer a range of benefits for borrowers, both in Australia and around the world. So regardless of what your particular circumstances are and who your banking history is with, a non-bank lender can give you access to the following:
Non-bank lenders often have lower overhead costs (staff, premises, locations, and advertising), allowing them to pass the savings on and offer the consumer competitive or lower interest rates on their home loans.
Non-bank lenders may be more willing to consider borrowers with non-traditional financial situations, such as freelancers, people with limited credit histories, and most importantly, those who have saved smaller deposits. This flexibility can be particularly appealing for anyone who doesn’t fit the strict criteria of traditional banks.
So if you usually find you’re unable to find an option in a drop down menu to describe yourself, relax — with a non-bank lender you can finally avoid being pigeonholed.
Non-bank lenders typically focus on a smaller client base, due to being a smaller business themselves, so this allows for a more personalised and responsive form of customer service. Why wouldn’t you choose to be called by your name over being processed as just a number?
Because non-bank lenders don’t have the bureaucratic layers we know so well (we’re talking the miles of red tape you get with traditional banks), non-bank lenders have the ability to process loan applications swiftly and therefore, get approvals through more quickly.
Having a dedicated home loan focus means non-bank lenders are generally able to offer more tailored or innovative loan products. They’re not tangled up in the details that come when offering the range of products the big banks do, like saving accounts, term deposits, and personal loans.
Low deposit loans, interest only loans, and loans for specific industries or circumstances are but a few of the areas non-bank lenders specialise in.
Being both smaller and newer, non-bank lenders tend to focus on better rates, excellent customer service, and/or unique loan features in order to not only compete with major banks but to set themselves apart.
When choosing a non-bank lender, there are other considerations and it’s important, as always, to do your research first. With so much of our lives taking place online, many people prefer the convenience of having their banking at their fingertips, while others may resent the lack of a physical branch and the face-to-face service that comes with that. So it’s best to be honest about the type of consumer you are before making any decisions.
Non-bank lenders are definitely a great and viable alternative to the big banks, particularly for those seeking flexibility or tailored financial solutions.
