The pros and cons of bank and non-bank lenders
As a mortgage broker with access to over 1,000 loan products, from over 30 lenders, I relish choice. When it comes to home finance, I believe selecting the right loan product for a client's unique situation requires access to a range of options to compare against their needs. I work with bank and non-bank lenders as both have advantages depending on the borrower.
It's worth mentioning that both banks and non-bank lenders have to abide by the same laws, rules and regulations in Australia. This includes the Consumer Credit Code which governs all credit transactions and the Australian Securities and Investments Commission which requires lenders to be transparent with fees, rates and make this information readily available when requested.
While the right loan and lender is dependant on a borrower's needs here are some insights on the general pros and cons of bank and non-bank lenders.
- The big pro for banks lies in security. Some borrowers feel safer with banks as they're often more established institutions and hold the majority of the Australian mortgage market
- Banks have an extra level of regulation under the Australian Prudential Regulatory Authority (APRA) who ensure that, under all reasonable circumstances, financial promises made by institutions are met
- Banks usually have stricter criteria and may not have as many tailored loan options
- Some banks pass on higher overhead costs to customers through their fees
- Big banks can offer slower or less personalised customer service
An additional point worth mentioning
Some borrowers also believe their bank offers the advantage of greater accessibility as they already manage their everyday banking. It's hard to view this as an advantage as these borrowers can miss out on more suitable alternatives by restricting their loan options.
Those who use a mortgage broker to do the hard work of comparing loans for them will have access to more options without any additional work. Shopping around can result in a loan with lower interest rates, lower fees and/or greater flexibility or security depending on what's desired.
- As smaller operators in the lending market, many non-bank lenders work hard to repackage funds and improve efficiency to deliver more competitive rates for borrowers
- They can often provide options for borrowers who don't meet bank lending criteria because they're self employed, have a lower credit rating or have been declined a loan in the past
- Non-banks have been known to provide a more personalised service and be more flexible to a borrower's needs and requirements
- They often have lower setup and ongoing costs
- Being smaller institutions, non-bank lenders can be more vulnerable to economic conditions
- Non-bank lenders may have fewer products available