First Tier Lenders vs. Second Tier Lenders 

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 the 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 that 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 is 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 recognized brand, and often the bank is already handling their everyday banking.
Cons: Stricter lending criteria mean less flexibility and 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 Lending Connections, we work with a panel of both bank and non-bank lenders. Our team will shop around on your behalf, compare rates and fees, and help you decide on the right financial solution to fit your needs.