Non-bank personal loans in Australia

You may have heard of non-bank lenders and may be wondering if the loans they offer are comparable to banks. With non-bank lenders, you may be able to get a competitive rate. They also offer personalised, risk-based loans. Their lending criteria are also more flexible. This allows borrowers with less than perfect credit scores access to personal loans.

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

A non-bank lender is a lender that is not a bank. The most notable difference is that most non-banks (with the exception of credit unions and some neobanks) do not hold a banking licence but are tightly regulated anyway.

Apart from credit unions and some neobanks, most non-banks are not authorised deposit-taking institutions (ADIs). This means that you cannot have current accounts or term deposits with non-bank lenders.

As they aren't ADIs, they are only regulated by the Australian Securities and Investments Commission (ASIC). ADIs, meanwhile, are regulated both by ASIC and the Australian Prudential Regulation Authority (APRA).

In short:

1. Non-bank lenders like credit unions and some neobanks function like banks and can accept deposits because they are an ADI.
2. Other non-bank lenders, like P2P lenders and alternative lenders, can lend but cannot accept deposits.

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

Once you set aside the technical differences between a bank and a non-bank lender, there are other factors you should take into account.

Non-bank lenders in general tend to be more flexible than banks with their lending criteria. This means that they are more likely to lend to borrowers with less than perfect scores. With non-bank lenders, you're more likely to receive a personalised or risk-based loan. This means that the interest 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.

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

They also offer fast online applications and generally process applications faster than traditional banks.

We've included a breakdown below:

What kind of non-bank lenders are there?

There are several types of non-bank lenders. These include:

• Credit unions and building societies. These financial institutions are also known as "mutuals". They are member-owned and not-for-profit. This means that any profits earned are put back into the products and services they offer their members. They offer standard financial products, including personal loans.
• 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.

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.

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.

How can I compare non-bank lenders?

Here's what you need to look out for when comparing.

• 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.

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

🤔 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.

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

✅ 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.

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

📱 Apply. Most lenders have their applications online.

Written by

Matt Corke

Head of Publishing Ventures

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 is 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