Non Bank Lending
If your bank has said no, there may be other options
A personal loan can be a great way to get cash so you can live life to its fullest. Here, we discuss a few things you should think about before deciding if a personal loan is right for you. Speak with a specialist to discuss your options surrounding personal loans.
What is a Non Bank
Why use a Non Bank
What Next
What is a Non Bank
Non Banks often describe themselves as a solution. They have a different set of criteria from Main Banks which means they can often provide you a finance solution when a Main Bank can't.
Less, but still Regulated
Non Banks don't face the same regulations as a Main Bank so they can have some flexibility in their policies. They also get to issue some lending outside of CCCFA if it falls within the correct criteria which further expands what they can offer. They still have their own internal risk policies and regulations they operate through to ensure safe borrowing.
A Solution
Non Banks are able to look at things differently. Where banks have certain criteria around credit history and minimum evidence for certain things, a Non Bank is able to take a more holistic view of your scenario. To account for the additional risk of this type of lending, they will often charge higher interest rates and fees.
Why use a Non Bank
A Non Bank can provide a temporary solution. This can get funding required to meet your goal but it is often temporary until you are able to get to a new lending option. These type of lenders know their solutions can be short term and usually encourage moving on from them to a bank or having a strategy to repay the lending. They do have long term options as well which may be suitable for your scenario.
Lack of Business Evidence
Main Banks typically want to see your last 2 years financials in order to show evidence your business income. If you have just started business and want to act before you have this 2 years evidence, non banks provide a solution to get in the door and obtain the lending needed. You also may have had a change in your business so using the last 2 years evidence doesn't reflect your current or future position. Policy varies here and the more evidence you have, usually means getting access to lower interest rates. Evidence can be as low 6 months bank statements and GST returns. Some of the terminology you will run into here is low doc or no doc, which refers to how much income evidence is given. It may also be referred to as Prime or Near Prime
Credit History Issues
If you have had something occur which has impacted your credit history then a Main Bank may not be comfortable taking on the proposed lending. A Non Bank, however, may be happy to take on your loan application given the credit impairments. This would see you face higher fees but provides a solution and gives you time to improve your credit history so you can go back to a Main Bank.
Outside Standard LVR Limits
Going outside of standard LVR limits is a great way for property investors to take advantage of opportunities if you don't have enough equity for traditional LVR limits. The Non Bank will charge a higher interest rate for this but may provide you enough room to make the purchase. The hope would be as the market improves you can demonstrate more equity in order to get within standard LVR limits. Property markets don't always go up so it is worth reviewing the risk of having your lending on higher interest rates. Internal policies around LVR limits are subject to change and can vary between lender so working with an adviser ​can help you make an informed decision.
What Next
Once you have taken up lending with a Non Bank, it has solved your solution in the short term but this can just be the first stage a plan. Knowing what the next step is can help you form a long term plan.
Get to a Main Bank
As we have reviewed there are a number of reasons you may end up with a Non Bank over a Main Bank. The next step may be improving the issue that stopped you getting to a Main Bank in the first place. Working with an adviser can help you put a plan in place to work towards and review when you are able to look at other options. If you ended up going through a Non Bank for credit history issues then it is important to keep up with your repayments and make sure you credit history stays clean. Some things like your equity position may be outside of your control and in the hands of the property market but it is worth keeping an eye on these changes so you can get access to better interest rates once this option is available.
Exit Strategy
Often the non bank serves a purpose while something is being processed. This cold be some extra cash in order to finish a reno and the project could then be sold. Or it could be getting you enough time to sell a property. Non Banks often fill a gap before your position changes so you can close off the loan. This exit strategy can be taken into account when looking into your options.
Long term partnership
Some of those who use Non Banks enjoy the flexibility they provide and although the interest rates are higher it allows them to purchase property or meet other goals. This can be a good foundation of a long term partner for your lending which you use again for other purchases or goals you may have.
Costs
This increased flexibility in assessment and loan products does come at a cost. When more risk is taken on, interest rates tend to be higher and there are some other fees to consider before you dive in.
Application Fees
Depending on your scenario and lender there may be fees associated with getting the loan set up, which are usually put through as application or legal fees. These can be added onto the loan amount in a lot of cases but it does mean interest is charged on these amounts. By taking on more risk, Non Banks usually want to ensure they have a strong property as security so they will request a valuation which comes at your cost as well. This cost is paid up front before the application has been unconditionally approved so there is a risk involved that it doesn't meet the lenders requirements.
Higher Interest Rates
A lot of the interest rate offers for Non Bank loans will be limited to floating rates, meaning they are subject to change. When the interest rate market is rising, this can mean increases to your rate and higher repayments which can be hard to manage. The rate off you receive is based on your application and scenario, so when there is more perceived risk the interest rates will be higher. There will often be named products which describe what category you fit into and how that impacts your interest rate offer. Some common terms for these products, are Prime, Near Prime, Specialist and Custom etc. Working with an adviser can help to cut through some of this and provide options you can clearly weigh up.
Ongoing fees
As smaller lenders, a lot of the time ongoing account maintenance fees will be on charged. This is mostly charged on a monthly basis and may not be a large amount but can add up over time so it is worth considering. If your plan is to move away from the lender within the short term then it is worth checking if there are any early repayment charges.