Mortgages

Bank versus non-bank lender loans: Which one is right for you

Toni Mladenova
Aug 11, 2021
Yard Financial Pty Ltd | ACN 623 357 513 | Australian Credit Licence 509481

Table of Contents

When you start looking for a home loan, you may be inclined to head straight to your bank or another bank that you recognise rather than exploring the multiple other options in the market. But did you know non-bank lenders, especially online lenders like Yard, have some distinct advantages over traditional banks that may help you save money? Find out how a non-bank lender can help you with your home loan.

What is a non-bank lender?

When it comes to lending, non-bank lenders perform similar functions to banks and can offer loans to a large range of borrowers. The key difference between banks, mutuals (credit unions and building societies) and non-bank lenders is how they finance their lending. Where banks and mutuals predominantly rely on deposits to finance their loans, non-bank lenders use wholesale funding from institutional and private investors.

Because banks and mutuals offer deposit and savings products they get regulated by the Australian Prudential Regulatory Authority (APRA) as the government wants to keep these deposits safe. The key regulator for consumer lending in Australia is the Australian Securities and Investments Commission (ASIC), which regulates both non-banks and banks and is responsible for setting the Consumer Credit Code. This means that non-bank lenders, like the banks, still have to be transparent with rates and fees and have an obligation not to let you borrow more than you're financially able to repay.

Non-bank lenders, like Yard, support economic growth by increasing the competition for lending through competitive interest rates, home loan features, and alternative forms of funding. The Reserve Bank of Australia (RBA) notes that non-bank lender home loans have been growing rapidly in recent years, at approximately 15% per annum, which is much higher than bank home loans. Consequently, the market share and popularity of non-bank lenders are going up, especially with online lenders such as Yard. 

Finally, the online non-bank lenders, like Yard, don’t have a lot of the overhead costs, like physical branches, that the banks have. Ultimately the banks need to pass these costs onto the customer somehow. All of this culminates in a better range and better pricing of home loan offers available to consumers.

The pros and cons of using a non-bank lender

If you're looking for a home loan and considering using a non-bank lender, you'll likely want to do your due diligence and weigh up the pros and cons of using non-bank lending.

Pros of using a non-bank lender

Lower rates and fees 

Although some non-bank lenders have branches or storefronts similar to traditional banks, most don't, and this means lower overhead costs they need to cover. Lenders with branches will pass the costs of maintaining these locations and staff onto customers through higher rates and fees. Non-bank lenders, especially online-only ones like Yard, don't have these costs and can offer lower and more competitive rates and fees as a result.

Faster application processing time

Traditional banks, especially the big four banks, have larger operations, onshore and offshore operations, paper-based processes and reliance on face-to-face interactions that can result in long processing times. All of these things often slow down the application process with more hoops, so to speak, to jump through. Non-bank lenders and, in particular, new online lenders like Yard also lean heavily into emerging technology to help process applications as quickly, efficiently and easily as possible for their customers. 

Home loans for a range of circumstances

Many non-banks, like Yard, provide loans for many different niches within their lending criteria. Rather than rely on rigid credit scorecards, non-banks can often take a more personalised approach to loan approvals. This could mean they might be willing to accept newer income types that the banks may not yet allow, such as freelance or ‘gig’ economy income.

In recent years the banks have frequently increased the interest rates on some types of home loans, such as investor and interest-only (IO) home loans, in order to manage the mix of these loans within their loan portfolios. There may also be other loans, like Self Managed Superannuation Fund (SMSF) loans, that the banks retreat from. Non-bank lenders only specialise in lending so may tend to retain their focus on what consumers are searching for.

Access to modern technology

Due to the newness of many non-bank lenders, especially the online-only lenders like Yard, they are quick to adapt and accept new technology. That may mean they offer completely digital application processes that make applying for and managing your mortgage easier and more accessible. They may also provide budgeting tools or calculators that help you prepare for your mortgage or pay it off sooner. Despite often having more funds available, traditional banks are often slow to include new technology into their offerings.

Cons of using a non-bank lender

Unlikely to have branches

As Australians move to managing more and more of their lives online, as well as the large costs associated with operating individual branches, the majority of non-bank lenders avoid establishing and maintaining physical storefronts. New online-only lenders, like Yard, don't have branch networks, which means if you prefer to deal with your lender in person, you can't.

Often newer without an established reputation

Many non-bank lenders are newer companies, especially compared to the major banks who have been operating in Australia for decades. This means they won't have the same established reputation or history that these larger banks have. The good thing is that they've adopted newer ways of gaining that reputation through customer reviews. Still, you can find out something about their reputation by just doing a search online or checking the reviews on an independent review website like Trustpilot.

Smaller institutions

As previously mentioned, there are benefits to the relative size of non-bank lenders compared to the larger banks, including less bureaucracy, modern technology and lower overhead costs. But in the event that something was to happen to a non-bank lender, another institution would step in and honour your loan agreement, taking over the servicing of your loan contract. It’s unlikely that the customer will notice any difference at all.

Is a non-bank lender safe?

To answer whether or not a non-bank lender is safe, you must understand the financial regulations all lenders must adhere to in Australia. Non-bank lenders that lend to consumers must hold an Australian Credit Licence, comply with ASIC’s regulation, the Australian Consumer Laws, Privacy Act and the National Consumer Credit Protection Laws. The traditional banks and mutuals that offer deposit and savings products rightly have an additional layer of regulation placed upon them because the government wants the savings of Australians to be safe. This gets administered by APRA.

Get to know the non-bank lender Yard

To get more specific, we can answer a few questions you may have about Yard to help you feel more comfortable dealing with non-bank lenders.

What are Yard's credit credentials?

Yard is 100% certified to offer credit products to Australian customers. Our Australian Credit Licence is 509481. You can read more about our Credit Guide on our website.

Where does Yard get its funding from?

Yard utilises wholesale funding from institutional and private investors.

How secure is Yard's online application process?

We are a 100% online company, and we take your privacy very seriously. You can read our privacy policy to understand how we handle your data. We also use encryption across our digital platforms to help you share your financial information with us securely. 

What products does Yard currently offer?

Yard offers a range of home loans to multiple borrower types. This includes variable rate home loans, fixed rate home loans, bridging loans, construction loans and SMSF loans. These loans can be principal and interest loans, interest-only loans and guarantor loans. Some of the borrower types that Yard offers loans to include owner-occupiers, investors, salaried employees, self-employed borrowers and non-residents. You're able to take advantage of these loans to purchase established properties, apartments, houses, off-the-plan, house and land packages and other types of properties.

How long does a home loan application with Yard take?

As an online-only lender, Yard offers online applications that can take from as little as 15 minutes to complete. If you'd like some support through the application process, you can always speak to a Yard expert who will help you through the application process over the phone.

What do other Yard customers say about your services and customer service?

We're proud to say that Yard customers seem to be overwhelmingly happy with our service, with 96% of our customers rating us as excellent on Trustpilot. You can read some of their reviews here.

What options do I have if I'm not happy with your products or services?

If you're in any way not satisfied with the service you've received from Yard, we would love to hear your feedback. You can contact our customer service team via email at help@yard.com.au. 

If we cannot resolve your issues satisfactorily, you can address your concerns with the Australian Financial Complaints Authority, an external dispute resolution service. 

Now that you've gotten to know a bit more about non-bank lenders and, in particular, Yard, our experts are ready to help you find a home loan that's right for you.


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