Non-bank personal loans in Australia

What is a non-bank and how are they different from banks?

Very simply, a non-bank lender is a lender that isn't a bank!

Banks are known as authorised deposit-taking institutions (ADIs). This means they can take and hold your money, like when you have a bank account or term deposit.

Non-bank lenders can lend money, but they're not ADIs and so they can't hold your money. This doesn't mean they're less regulated.

Non-bank lenders are still regulated by the Australian Securities and Investments Commission (ASIC).

ADIs are regulated both by ASIC and the Australian Prudential Regulation Authority (APRA).

How does a non-bank personal loan work?

A personal loan from a non-bank works just like a personal loan from a bank. The loan will be either secured or unsecured and offer fixed or variable interest rates. The funds are received in a lump sum, and you'll have to pay it back with interest and fees.

Some lenders may also accept a wider variety of security. You can use home equity or a vehicle, but you may also be able to use a term deposit as a guarantee, or even jewellery or art.

Why should I apply for a loan with a non-bank lender?

As said already, non-bank lenders are tightly regulated and trustworthy providers of credit. There are some other differences that you might want to consider.

• • More flexibility

Non-bank lenders generally tend to be more flexible than banks with their lending criteria. They're more likely to lend to borrowers with less than perfect scores. Non-bank lenders usually offer personalised or risk-based interest rates, which means the rate you pay is determined by your credit history. If you have a good credit score, your rates will be lower than if you had an average or middling score.

• • Competitive interes rates

Non-bank lenders can also potentially offer more competitive rates overall. This is because these lenders are smaller than traditional banks and don't have as many branches, if any. This means they have lower overheads. As a result, they're able to pass on these savings to their customers through competitive rates.

• • Fast turnaround

Non-banks usually don't have the same legacy systems as traditional banks, so they can be more innovative. This means they often have technology able to offer fast online applications with faster processing times.

Bank vs non-bank personal loans

What kind of non-bank lenders are there?

There are several types of non-bank lenders, some of which might act like a bank. These include:

• Peer-to-peer (P2P) lenders. P2P lenders facilitate a platform which allows investors to finance a portfolio of personal loans. Your loan will basically be financed by an investor and they will earn interest on what they lend. P2P lenders offer personalised rates based on your credit score.
• Neobanks banks. Neobanks or digital banks operate online, while offering a range of tech-driven services. These banks don't have a physical presence, but focus on technology instead. Neobanks often offer interest rates personalised to your credit score. Some neobanks are also ADIs.
• Alternative lenders. These are small lenders offering personal loans. They also include Small Amount Credit Contracts, or payday loans up to $2,000. Some lenders also offer larger loans up to $5,000 or $10,000. Payday or short term loans come with high fees and charges, and you should compare your other options before applying.
• Credit unions and building societies. These financial institutions are also known as "mutual banks". They are ADIs so they do hold money and offer services like transaction accounts. But they're key to mention here as they are different to banks in the way they don't make profits for shareholders. Instead, they are member-owned and not-for-profit. Any profits earned are put back into the products and services they offer their members. They offer standard financial products, including personal loans.

Expert insight

"Personal loans aren't the banks' bread and butter, so non-bank lenders have stepped in with very competitive alternatives. This increased competition has led to sharper rates, more flexibility, and often much faster approval times.

Non-bank lenders often use innovative technology to create smoother, smarter experiences. This typically means faster loan approvals than what you would experience from a bank.

For many borrowers, the combination of better value and speed makes non-bank lenders a strong alternative to traditional banks."

Jonathan Wu

Chief operating officer & chief product officer, MONEYME

How can I compare non-bank lenders?

Here's what you need to look out for when comparing non-bank personal loans:

• Does the lender have any membership requirements? Non-bank lenders like credit unions and building societies will require you to be a member. Membership is easy to apply for and may not cost a lot. Other non-bank lenders don't have membership requirements, but there will be other eligibility requirements.
• What's the interest rate of the loan? The interest rate is an important factor in determining the cost of the loan. It is how much you will be charged for borrowing. A low interest rate means your loan will cost less. But it's not the only cost you need to consider. Keep in mind that while a loan may have low interest, it could have high fees. This will add to the total cost of your loan.
• What are the fees and the comparison rate? Apart from interest rates, you need to look at the comparison rate. The comparison rate is the total cost of the loan, inclusive of fees and interest. Fees include monthly and establishment fees. It does not include other fees which may come with exiting the loan early, or making extra repayments. If those are features you're interested in, make sure to take into account how much it will cost.
• Is the loan secured or unsecured? Depending on whether you want to offer security, you can filter for secured and unsecured loans.
• What are the minimum and maximum borrowing limits? Each lender will set its maximum and minimum borrowing limits. You need to check whether the amount you need to borrow is offered by the lender. How much you can borrow will depend on your income and ability to repay the loan.
• Do they offer the terms you need? If you need a loan for a long term, be sure to check if the lender offers this. Your loan terms will also determine how much your monthly repayments are. With a long term, your monthly repayments will be low but you'll be paying interest for longer. This could hike up the total cost of your loan.
• Do they have multiple repayment options? Does the lender offer you repayment flexibility? Are you able to choose between weekly, fortnightly and monthly repayments? If you're looking at a variable rate loan, look for one that allows you the option to make extra repayments without penalty. This will allow you to pay off your loan sooner.

What to watch out for when applying for a non-bank personal loan?

• High interest rates. If borrowers with good credit scores can get lower interest rates, it means the same goes the other way round. If you have a below average or poor credit rating you might get faced with high rates.
• Predatory lenders. Short-term and payday lenders fall under non-bank lending. You need to be really careful when comparing these providers as there are some that will charge exorbitant rates or fees, particularly if you only need a small loan. Always check the the non-bank lender has a financial services licence.
• Customer support. Because non-bank lenders typically won't have physical branches (unless they're credit unions) make sure they have clear customer support options through phone centres, online chats or emails.

How can I apply for a non-bank personal loan?

1. Work out how much you need to borrow and what you can afford. You can use our personal loan calculator to figure out how much you can afford to borrow.

2. Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use Finder's comparison table.

3. Select a lender. Click "Go to Site" to be directed to the lender's page, or "More Info" if you want to read about the lender.

4. Organise and prepare the required documentation. This can include identification documents and financial information.

5. Apply. Most lenders have their applications online.

Frequently asked questions about non-bank personal loans

• Are non-bank lenders safe?

  All non-bank lenders are regulated by ASIC. Some may also be regulated by APRA. Because they are regulated, the risk of using a non-bank is limited. With credit unions and some neobanks, they are regulated just as a bank. Additionally, as with a bank, there is a financial claims scheme for ADIs. If you deposit with them, your deposit up to $250,000 is protected.

• Are non-bank personal loans easier to get approved?

  This really depends on your financial situation, but yes it's typically easier to get approved for a non-bank loan. This is because non-banks have more flexible lending criteria and can adjust their rates for different borrower profiles.

• Do non-bank personal loans affect your credit score?

  Yes, as with any lending product, a personal loan from a non-bank will affect your credit score. Even applying for a loan, regardless of whether you're approved or not, will have an impact on your score. So if you're rejected for a loan it's important that you don't immediately try to apply for another. Too many loan applications in a short period of time will reflect badly and make it even harder to be approved.

  Once you have the credit and make regular, on-time repayments, your credit score should begin to improve.

Written by

Matt Corke

Head of Publishing Ventures

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Matt Corke is Finder’s head of publishing ventures. Prior to this he was head of publishing for Australia, New Zealand and emerging markets. Matt built his first website in 1999 and has been building computers since he was in his early teens. In that time, he has survived the dot-com crash and countless Google algorithm updates. See full bio

Co-written by

Bria Horne

Writer

Bria Horne was a writer for Finder, with a specialist knowledge of personal loans, car loans and business loans. Originally from the UK, Bria has been a professional personal finance writer in Australia for over 2 years. She has an M.A and B.A in Philosophy and Literature from the University of Sussex, and previously worked on the UK’s leading hospitality publication. See full bio