08 Nov Non-bank Lenders Vs Banks
Why Choose Non-Bank Lenders over Banks?
The majority of people tend to focus on banks when looking for a home loan to begin with, not even considering the option of a non-bank lender. However, non-bank lenders now have the ability to compete with the banks in providing competitive interest rates. More and more potential homeowners are using them giving them better interest rates than that of banks.
The big four banks (ANZ, Westpac, CBA, NAB) still remain the lenders with the majority of market share with 82.7%. However, this has been on the decline in recent years as second tier bank lenders along with non-bank lenders have seen an increase in sales and as a result, market share.
Who are non-bank lenders and are they safe to use?
Non-bank lenders are entities that allow you to take out a home loan dependent on meeting the required criteria.
Non-bank lenders are safe to use, they must comply with the National Credit Code (NCC) governing all credit transactions in Australia, thus are legally obliged to disclose all information about the transactions, mainly presented in the form of a contract. It may be worth studying the NCC if looking to borrow from non-bank lenders.
Alternatively you could speak to a mortgage broker and ask for advice on areas such as the reliability, quality, and reputation of any lender.
What are the advantages of using non-bank lenders?
Many people want to join the property ladder, however when they contact banks they are unable to fulfil the required criteria. The advantages of non-bank lenders:
- They can be less strict with regards to their lending criteria, for example if you have a poor credit rating.
- Offer more personalised and niche loan products and flexibility in meeting specific requirements.
- Offer competitive rates to those who cannot comply with the banks lending criteria.
- Ideal for foreigners or if self-employed.
However, a disadvantage of using non-bank lenders, even though they offer competitive rates, if you are after flexibility in a loan or you have a poor credit score, interest rates may be higher. They can do this knowing that the majority of banks would reject a loan enquiry.
What are the advantages of using banks?
The majority of those who contact banks for a home loan should know that they are in a good position financially to purchase a home, meeting their criteria. Bank home loans can put you at an advantage in the sense that:
- They are very secure. For example, the big four have the majority of market share; it is evident they are trustworthy. Customers know they offer security. The Australian Prudential Regulatory Authority (APRA) ensures that all financial promises are met.
- They offer competitive rates.
- They offer highly valuable advice through years of experience.
There are also disadvantages when using banks, such as stricter criteria and they also tend to pass on overhead costs to customers in the form of higher fees.
Deciding on whether to opt for a bank or a non-lender may be completely down to your current financial position. However, while both banks and non-bank lenders offer security and competitive interest rates, your final decision may come down to which offers the lowest rate ultimately saving you money.
In order to find the best interest rates, contact a mortgage broker to do the searching for you at no extra cost such as QuickSelect (www.quickselect.com.au/) mortgage broker for example or head to our rates comparison page (http://www.thefinancesite.com.au/) to compare the most up to date rates. It is also very important for buyers to make sure the house they are purchasing is perfect for them before ensuing to take out the loan.
Remember, this may be one of the largest investments you will make in your life, make sure you do it right.