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Why non-banks are increasingly becoming Australia’s lenders of choice

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Over the last few years, non-bank lenders have given mainstream banks a run for their money.

The latest Reserve Bank data shows that non-bank lenders’ market share is growing rapidly. As of April 2022, their slice of the lending market climbed to a decade-high of around 20% on a six-month-ended annualised basis.

This indicates that Australian borrowers are seeking alternative financing options, and more of us are turning to non-bank lenders.

The difference between a non-bank lender and an ADI

An ADI is an authorised deposit-taking institution regulated by the Australian Prudential Regulation Authority (APRA). Banks and credit unions fall in the ADI category. As such, they are allowed to accept customer deposits into savings and investment accounts.

Non-bank lenders are non-ADI financial institutions that can provide loans and other credit products, but cannot accept deposits.

The pros of using a non-bank lender

One reason non-bank lenders are growing in popularity is because they offer some very competitive interest rates. But how are non-bank lenders able to undercut the banks on interest rates?

The main reason is that non-bank lenders have much, much lower overheads.

They don’t have to pay for unprofitable bank branches, hordes of staff and flashy marketing campaigns. Nor do they have to employ large tech teams to run their complicated (and often outdated) tech systems.

As a result, non-bank lenders often have lower costs than traditional banks – which translates into lower interest rates for home loan borrowers.

At the same time, non-bank lenders realise that customers need a compelling reason to switch away from mainstream banks. So that forces them to find a point of difference – which is often lower interest rates.

Other advantages of using a non-bank lender are:

  • Faster application processes. Many non-bank lenders accept online applications with a quick turnaround time on approvals.
  • Greater flexibility. Many online lenders will customise a financial product to suit the customer’s needs, and some are willing to accept customers that most traditional banks won’t, like those with a poor credit rating.
  • Better customer service. Because non-bank lenders are smaller than traditional banks and hungry for your business, they tend to provide friendlier and more personalised customer service than the banks.

    Here are 5 reasons why Australian’s choose non-bank lenders.

    Is non-bank lending safe?

    Because non-bank lenders don’t have an ADI licence, you may have concerns over how safe it is to transact with them. Don’t worry. Non-bank lenders are regulated by ASIC, the financial services regulator.

    Non-bank lenders must have an Australian Credit Licence (ACL) and comply with many of the same industry and legal codes as the banks. These include the National Consumer Credit Protection Act, Australian Consumer Law and Privacy Act.

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