Has there ever been a time when you have needed a personal loan or business loan and have automatically used a bank? This is naturally what most people do. However, the modern economy is a place where non-bank lenders are now legitimate alternatives you can choose over traditional banks. They have brought about a very competitive environment, which is seriously advantageous to borrowers.
So just what are non-bank lenders? In a very technical sense, non-bank lenders are lenders that aren’t your typical credit unions, banks, or a building societies. Rather, they are an establishment with a source of their own wholesale funds, which they lend out in order to generate profit.
Usually, a non-bank lender might also be somebody like a mortgage manager, which is someone that borrows bank money at wholesale rates before lending it out again with an added margin.
Advantages Of Using Non-Bank Lenders
There are a number of major benefits in using a non-bank lender. Given that they borrow their funds at wholesale rates, this usually means they have wide margins to work with, so they’re able to give you interest rates lower than what the big banks might do.
One other advantage of using non-banks in lieu of conventional banks is their actual size. They’re often smaller, and as such, subjected to different rules and regulations, meaning non-banks have more flexibility in how they approach lending. They’re better positioned to tailor loan products that suit the unique circumstances of each customer.
Being smaller organisations, this means that they also offer better levels of customer care. A majority of borrowers rank personal service highly, especially those that have had bad experiences with banks. This means that non-banks are in prime position to provide customised service as well as quicker turnaround times on their loan applications.
Another huge benefit that non-banks can provide over traditional banks is that they are typically more willing to lend money to higher-risk borrowers, like self-employed professionals. They’re also more flexible in terms of fluctuations in a person’s credit history.
Non-Bank Lending Has Evolved
Non-bank lending rose to prominence in the ’90s and early part of the new millennium. This developed through lenders who were able to access wholesale funds sourced through securitisation markets, where asset bundles including things like mortgages get sold to investors.
Following the GFC, the securitisation markets dried up significantly, forcing non-banks to seek out new funding sources. Sometimes, that meant going to the actual banks. Back in the economy of securitisation, non-bank lenders sometimes accounted for as much as half of the market. Now, they are less than a seventh of that.
Despite this, non-bank lending keeps growing in terms of a sector as it offers borrowers viable alternatives to the big banks, and that keeps competition alive in the lending market which ultimately benefits the borrower.
Non-Bank Lending Regulation
Even though banks typically enjoy the perception of safety given their size, history, and level of government regulation and security, the truth is that modern non-bank lenders must also now comply with extensive industry and legal codes. Specific applications include National Consumer Credit Protection laws, Australian Consumer Law, the ePayments Code, Privacy Law, and ASIC laws. The only real difference that banks have is that they are also subjected to an additional layer of regulation which the Australian Prudential Regulatory Authority oversees.
After it is all said and done, the choice to use a bank versus a non-bank lender should ideally boil down to which kind of lender offers the product that best suits your circumstances. As with any other purchase, your decision needs to be based on value for money, product availability, and how compatible the product is with your needs.
Non-bank lenders have advantages in many of these areas so should be at the top of your shopping list when you’re on the hunt for a business or personal loan. However, just like any other important money decision, you need to do thorough research and due diligence first. As always, professional advice can be useful in making these important decisions.
LoanOne is one of the fastest growing non-bank lenders in Australia. We offer both personal and business loans with competitive rates across many different industries. Our loans are fast, flexible and can be tailored to both your personal or business needs. If you’re in need of some fast cash, then click here and apply today!