The rise of non-bank lenders: What they are and what it means for Australian borrowers

In the dynamic world of finance, choosing the right lender is crucial for securing the best funding options for your needs. According to recent data from the Australian Finance Group (AFG), non-bank lenders have seen their market share grow from around 15% to 25% over the past five years. This trend reflects a growing demand for alternative financing solutions as borrowers seek more flexible terms and quicker approvals. A common question we encounter is, “What’s the difference between bank lenders and non-bank lenders?” Let’s break it down.

 What are bank lenders?

Bank lenders are traditional financial institutions that offer a range of financial products, including home loans, personal loans, and business financing. They are heavily regulated by the australian prudential regulation authority (apra) and must adhere to strict lending guidelines. Some key characteristics include:

• Regulatory oversight: banks are bound by comprehensive regulations that dictate how they operate, providing a sense of security for borrowers.
• Standardised processes: bank lenders typically follow set processes and criteria for loan applications, which can lead to longer approval times but ensures a consistent approach to lending.
• Competitive interest rates: according to the reserve bank of australia (rba), the average interest rate for new loans as of may 2024 was approximately 27%. Banks generally offer competitive rates, but they can vary based on the applicant’s financial situation and economic factors.
• Rigorous approval criteria: banks often require extensive documentation and may have stringent credit score requirements. For instance, the reserve bank of australia (rba) reports that around 30% of loan applications are rejected by banks due to these strict criteria.

What are non-bank lenders?

Non-bank lenders include private lenders, mortgage funds, and credit unions that do not hold a banking license but offer similar financial products. They often provide greater flexibility in their lending practices. Here’s what sets them apart:

• Flexibility: non-bank lenders can tailor their lending solutions to suit individual borrower needs. They often have more relaxed criteria, beneficial for those who may not meet traditional bank requirements.
• Faster approval processes: due to their streamlined processes and fewer regulatory hurdles, non-bank lenders often provide quicker loan approvals—sometimes within 48 hours compared to several weeks with banks.
• Diverse loan options: non-bank lenders often offer a wider variety of loan products. According to a report by corelogic, the non-bank lending sector has seen a 30% increase in market share over the past few years, reflecting the growing demand for alternative financing options.
• Higher interest rates: while they may offer more flexible terms, non-bank lenders often charge higher interest rates. For instance, the average rate for non-bank loans can be around 1% to 2% higher than that of traditional bank loans, according to data from mortgage choice.

Which option is right for you?

Choosing between a bank lender and a non-bank lender depends largely on your unique financial situation and goals. If you have a strong credit history and prefer a conventional approach, a bank might be the right fit. However, if you require flexibility, faster approvals, or have specific financing needs, a non-bank lender could be more advantageous.

At IJ Capital, we understand the intricacies of the lending landscape in Australia. We work closely with clients to assess their individual circumstances and provide tailored financing solutions that best meet their needs. If you’re looking for finance solutions for commercial lending, including residential properties, commercial, or industrial properties, we’re here to help you navigate your options.

Conclusion

The choice between bank and non-bank lenders is important and can significantly impact your financing journey. By understanding the differences, you can make an informed decision that aligns with your financial goals. If you’re ready to explore tailored financing solutions, contact our Brisbane team today. We’re dedicated to helping you secure the funding you need to achieve your property aspirations.