Non-Bank Lenders: The Pros and Cons

What comes to mind when you think of non-bank lenders, otherwise known as second-tier lenders? You may think of shadowy, predatory money lenders who charge exorbitant interest rates with hidden fish hooks.

Thankfully, New Zealand has robust regulations that deter those lenders, creating a secure environment for borrowers. At Platinum Mortgages, we only work with reputable non-bank lenders who provide vital lending services to those who don’t meet the banks’ strict lending criteria.

By partnering with non-bank lenders, Platinum Mortgages can help you find tailored solutions to buy a home when other doors have closed.

Mortgage Application Rejected - Non Bank Options Available

What are non-bank lenders?

Non-bank lenders are generally smaller operators funded through investors or wholesale lines of credit. They operate outside the traditional banking system, giving them more flexibility to think outside the box. As a result, they have innovative solutions to meet individual circumstances, whether for your first home, your next home, or an investment property.

Why use a non-bank lender?

Non-bank lenders are often an excellent option for those who can afford a loan, but the banks reject them. There are many reasons why banks may decline to lend to you even though you can afford a mortgage. Common examples include:

A low credit score due to past financial challenges
Self-employed with less than two years of financials
A good income but a small deposit
Irregular income
Past bankruptcy

Whatever the reason, non-bank lenders empower you to get into the housing market today. We can then support you in taking the actions needed to improve your financial footprint so we can move your mortgage to a mainstream bank.

The pros of using a non-bank lender

1. Flexible lending criteria

Solution focused: Non-bank lenders will consider applicants with complex financial situations and histories.
Credit issues are not deal-breakers: Unlike banks, which often reject applications based solely on a poor credit score or past issues, non-bank lenders assess the broader financial picture. They may excuse past credit problems if you’ve made efforts to recover, have a stable income, and demonstrate affordability.
Self-employed and non-traditional income solutions: For those who are self-employed or have fluctuating incomes (such as freelancers or contractors), non-bank lenders are more understanding of irregular income streams and can work with you to create a loan package to suit.

2. Innovative loan structures

Interest-only loans: Non-bank lenders frequently offer long-term interest-only loans or loans with borrowed funds as a deposit, which can be ideal for first-home buyers struggling to meet the 20% deposit requirement that banks usually require.
Short-term bridging solutions: If your credit situation is likely to improve in a year or two, some non-bank lenders offer short-term loans that allow you to refinance with a bank later on.

3. Great customer service

Quicker turnaround times: Non-bank lenders tend to have faster approval processes than traditional banks. That is particularly useful in a competitive housing market where time is critical — some lenders offer a 24-hour turnaround time.
Personalised assessments: Non-bank lenders assess each application on its merits, offering tailored advice and solutions that fit your unique situation.

The cons of using a non-bank lender

1. Higher interest rates

Increased risk equals higher rates: Since non-bank lenders take on higher-risk loans, they often charge higher interest rates and short-term premiums. That means higher monthly payments, costing you more than a loan with a main bank.

2. Higher fees

Broker and lender fees: Non-bank lenders sometimes charge higher establishment fees, broker fees, or ongoing administrative fees to compensate for the increased risk they assume. It’s important to factor these costs into your overall mortgage affordability. However, if cash flow is an issue, these fees can often be added to your home loan.
Fee structures: Some non-bank loans also have prepayment penalties or exit fees, limiting flexibility if you want to repay the loan early or refinance with a traditional bank. But that isn’t always the case; some have no charge at all.

Non Bank Lender Solutions - Bank Declined Home Loan

Is a non-bank lender right for me?

If traditional banks have turned you away, non-bank lenders could be the key to unlocking your own home! Non-bank lenders excel in helping clients who need a more personalised approach to home lending. They’re perfect for situations where traditional banks won’t budge – whether because of credit history, self-employment, or unique financial circumstances.

However, it’s crucial to know the potential trade-offs, such as higher interest rates and fees. While non-bank loans may be a stepping stone toward future refinancing, the higher rates can increase the overall cost of your mortgage, particularly over the short term. But they’re a great way to get you into the property market as a starting point, with the potential for future refinancing with a traditional bank.

Working with a trusted mortgage adviser (like Platinum Mortgages!) can help you navigate these options, weigh the costs and benefits, and find the right non-bank lender to meet your needs. We’ll ensure that the solution you choose aligns with your long-term financial goals while getting you into your first home sooner than you thought possible.