Obtaining loans from traditional banks may often be time-consuming due to paperwork, administrative steps, and document verification. This may delay loan approval, which could make it difficult for borrowers seeking quick loans.
But some non-bank lenders provide fast loans.
Eager to know more about them?
In this guide, we’ll cover the key information about non-bank lenders to help you find a suitable lender for your requirements.
Disclaimer: Certain ideas and products presented in this article may not be offered by Monzi or the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal, or other advice to check how the information and ideas presented on this website relate to your unique circumstances.
Who are Non-Bank Lenders?
Non-bank lenders are financial providers that typically give loans to borrowers without accepting customer deposits. These financial institutions generally aren’t supervised by the Australian Prudential Regulation Authority (APRA), even if they hold an Australian Credit Licence (ACL).
Instead, they may be directly regulated by the Australian Securities and Investments Commission (ASIC).
You may wonder:
How do non-bank lenders get money for loans if they don’t accept customer deposits?
Typically, non-bank lenders source money for loans themselves. In some cases, they may use securitisation, a process where they pool and repackage loan portfolios into interest-bearing securities like investment funds. They may then sell the securities to investors to obtain funds for the loans.
How Safe are Non-Bank Lenders?
Taking loans from non-bank lenders might generally be considered safe, provided the lender holds a valid credit licence under the National Credit Act and complies with ASIC regulations.
However, because non-bank lenders usually lie outside the prudential banking regulation (i.e., they are not supervised by APRA and cannot take deposits), they may carry different risks compared with traditional banks.
What Types of Loans do Non-Bank Lenders Offer?
Due to varied customer demands, many non-bank lenders may offer different types of loans with a diverse range of amounts:
- Personal loans: Often used to meet personal expenses such as debt consolidation and home renovations.
- Mortgage loans: Mostly for financing the purchase of real estate, where the property itself serves as collateral.
- Home loans: Often borrowed to buy or build houses, using the same or any other property as collateral.
- Fund loans: Generally provided to borrowers from the lender’s fund for business or personal expenses.
What are the Pros and Cons of Non-Bank Lenders?
Although the non-bank lending market is seeing steady growth in Australia, it has potential advantages and disadvantages. Being aware of these may help you make informed decisions when choosing loans.
Pros
- Fast approvals: Non-bank lenders may have streamlined loan approval processes with flexible internal rules and advanced automation. This might provide quicker access to the loan amount, which might be beneficial for some borrowers.
- Flexible lending: Non-bank lenders generally follow ASIC guidelines and may have fewer regulatory constraints, lenient income assessments, and credit requirements. This might mean non-bank lenders consider applications from people with poor credit history or businesses.
- Tailored services: Non-bank lenders usually analyse borrowers’ intentions, situations, and financial conditions before issuing loans, potentially offering customised solutions.
Cons
- No deposits: Non-bank lenders usually do not offer savings or transaction accounts. You might need to create and manage a separate account with a regular bank, even if you already have accounts with non-bank lenders.
What Happens if Non-Bank Lenders Stop Operation?
When non-bank lenders go bust, they may sell their loan portfolio and other assets to another company. As this is typically an internal process, the terms and conditions of the loan may remain the same, and you may continue making monthly repayments.
What are the Risks Tied to Using Non-Bank Lenders?
When compared to the traditional banking system, engaging in non-bank lending may carry some risks.
As non-bank lenders aren’t usually regulated by APRA, they may provide fewer external consumer protections. Some of them may also charge additional fees that are not immediately obvious. Typically, traditional banks may offer lower rates than non-bank lenders.
However, you might reduce these risks by carefully reviewing the terms, conditions, and interest rates of any loan.
Want to Borrow from Non-Bank Lenders in Australia?
If non-bank lending seems like the right option for you, finding suitable non-bank lenders might be challenging. According to data from the Reserve Bank of Australia (RBA), non-bank lenders account for a small percentage of the total financial system, which could make them hard to locate.
So if you’re exploring loans, Monzi may help by matching you with non-bank lenders based on the information you provide. We’re easy-to-use and reliable, and may connect you with suitable lenders that could meet your needs.