Banks versus Non-bank Lenders


commonwealth bank

Borrow from a bank or a non-bank lender?

The big banks that we know and love (haha) in Australia have been under intense scrutiny by regulators and forced to tighten their lending criteria. This is good, and protects borrowers from falling into unserviceable loans.

But with this abundance of caution, the last two decades has seen non-banks and alternative lenders jump in, trying to grab their slice of the home loan market.

Since the Global Financial Crisis, non-banks – that is, companies that offer loans but are not allowed to receive deposits – have progressively lost market share. The Australian Bureau of Statistics (ABS) estimates that in 2024 non-banks will hold an 11% market share in residential housing loans. It’s not nothing, but it’s small.

So which should you choose?

What’s the difference?

Banks and non-bank lenders both have to abide by laws and industry standards that cover banking and finance, particularly the National Consumer Credit Protection Act.

The main difference between the two is that deposits can only be made to banks and credit unions. While that makes banks more handy as a place to centralise all of your accounts, it also means that non-bank lenders do not have the extra expense of paying interest to depositors, which reduces the income and profit of a major bank.

But where do non-bank lenders get their money if they can’t take consumer deposits? They borrow it. Their profits come from the variation between the interest rates they charge clients and those they pay on their own borrowing.

Benefits of non-bank financing

Within the limits of the law, non-bank lenders are often open to approving loans that the big banks would shy away from, though usually at a higher interest rate.

Non-bank lenders make up around 11% of the lending market in Australia, but can be a good option for those starting out or with unusual financial histories.

These lenders often boast faster processing times and offer credit for borrowers who otherwise would not be able to get approved at a bank, such as independent contractors, casual workers, non-residents, and those with sub-par credit scores.

If someone’s looking for a home loan and doesn’t quite tick all the big banks’ checklists, they can turn to non-bank lenders to start their real estate journey, then aim to switch to an actual bank (and a lower interest rate) down road.

Benefits of conventional bank lenders

Apart from usually offering lower interest rates, a conventional bank or credit union offers the advantage of providing more than simply the initial product. Having ATMs and branches in case you ever need them can be a benefit of a traditional bank. Banks also provide specialist services linked to wealth building, guidance and help (using their own products, of course).

Although excellent government control of non-bank lenders is in place, some borrowers are still keen to use known big-bank brands. Some borrowers still shiver at the mere thought of benign-sounding names like Fannie May and Freddie Mac – American banks that failed big-time in the Global Financial Crisis in 2007–2009. Trust is important for many borrowers.

Banks and non-banks

Canstar tells us there are 131 approved home lending companies in Australia. That’s a huge and intimidating choice for anyone trying to find the best loan for them.

Here are some of the main lenders.

The ‘Big Four’ banks

  • Commonwealth Bank of Australia
  • Westpac
  • National Australia Bank (NAB)
  • ANZ (Australia and New Zealand Banking Group)

 

Other banks

  • AMP
  • Auswide Bank
  • Bank Australia
  • Bankwest
  • Bank First
  • Bendigo and Adelaide Bank
  • Beyond Bank Australia
  • ING Australia
  • Macquarie
  • ME Bank
  • MyState Bank
  • St George
  • Suncorp Bank
  • Teachers Mutual Bank
  • Ubank

 

Top credit unions

  • People’s Choice Credit Union
  • Summerland Credit Union

 

Top non-bank lender

  • Athena (also known as Apollo)
  • Bluestone
  • Brighten
  • Firstmac
  • La Trobe Financial
  • Liberty Financial
  • Pepper Money
  • Wave Money

 

Speak to a Sydney mortgage broker

With so many lenders, and so many loans offered by each of them, it’s no wonder around 75% of all Australian borrowers use a mortgage broker.

The expert loan specialists at Mortgage Broker Sydney can cut through hundreds of loans, finding ones that will suit you. We will work with you to understand your financial situation, consider your plans for home ownership, and match you with the very best loans.

No matter whether a loan is from a bank, credit union or non-bank lender, we have a legal obligation to operate in the best interests of clients. If you go direct to a bank or other lender, they will only offer one of their own loans. We give you more choice. We don’t play favourites.

Best of all, our service is totally free to you. Of course, should you take out a loan, your lender will charge normal fees and charges.

Contact Mortgage Broker Sydney to find a better loan.