Stricter lending conditions across Australia have led to a rise in the number of borrowers turning to second tier lenders for finance. Second tier lenders – who can be smaller banks or non-bank lenders – whilst also tightly regulated, can often have more flexibility in the rates and fees they can offer. As a borrower who doesn’t quite meet bank lending criteria of the Big 4 Banks, a second tier or non-bank lender may be the answer.
What’s the difference?
Because of their size, scale and presence, our Big 4 Banks, referred to as 1st tier lenders, are often seen as a more reliable option for finance. The Big 4 Banks do offer attractive rates, good customer service and a fairly simple application process, however, due to regulations, they often have stricter rules and lending conditions, with very little ability to be more flexible.
Second tier lenders are institutions who may source their own funding and thereby have a differing loan offer for their customers, or they may simply offer more flexibility than the parent company, if owned by a 1st tier lender. These lending institutions are still tightly regulated by consumer credit governing bodies, but in most cases, they can help buyers secure a mortgage with a lower deposit, bad credit or for those customers who are self-employed.
Pros and Cons
It’s worth noting that both banks and non-bank lenders must abide by the same consumer credit laws in Australia, in that they must be transparent with fees and rates and make this information available when requested.
Take a look at the pros and cons of securing finance with bank lenders and non-bank lenders:
1st Tier Banks
Pros: Many borrowers feel safer with banks as they are often more established, a recognised brand and often the bank is already handling their everyday banking.
Cons: Stricter lending criteria means less flexibility, big banks can be seen as less personal.
2nd Tier Lenders and Banks
Pros: Competitive rates, they can provide solutions for borrowers who don’t meet standard bank lending criteria.
Cons: Being smaller, they can be more vulnerable to fluctuating economic conditions and their brand might not be as well known
At Mortgage Express, we work with a panel of both bank and non-bank lenders. Our team of brokers will shop around on your behalf, compare rates and fees, and help you decide on the right financial solution to fit your needs.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA