Jargon Buster: What's A Non-Bank?

What exactly is a non-bank lender? As a proud non-bank lender ourselves, we explore the facts and expose common misconceptions about these institutions who play a vital role in New Zealand's home loan and lending ecosystem.

What is a non-bank lender?

Put simply, a non-bank lender is a finance provider that isn't a bank. As they’re not deposit-taking institutions, their loans aren't funded by customer deposits. Instead, their loans are funded by pooling together debt and on-selling it to institutional investors.

Are non-bank lenders as trustworthy as a bank?

Absolutely. Non-banks are perfectly trustworthy home loan providers who help drive competition with the mainstream lenders in New Zealand's mortgage market. They offer borrowers an alternative to a traditional bank loan, which not only gives people more choices, but provides an option for those who fall out of the big bank’s risk appetite.

Did you know? Non-banks make up a significant part of the home loan market, lending billions of dollars to fund home loans each year.

Do non-bank lenders only give loans to people with a bad credit history?

Not at all! Non-bank lenders are an option for prime borrowers - those who could go to a traditional lender, tick all the boxes and have a squeaky-clean credit score. However, non-bank lenders often specialise in providing loans for so called non-conforming borrowers including self-employed people, first time buyers and property investors.

Some borrowers get knocked back simply because they don’t fit the banks usual boxes, like having a credit history, or meeting Lenders Mortgage Insurance (LMI) providers’ criteria.

One example: if you’re self-employed you might not have evidence of cash flow or income statements, so your loan application may be rejected by a traditional bank lender.

But just because an applicant has been turned down for a loan by a bank doesn’t always mean they’re a credit risk. Which is why many non-bank lenders, including here at Pepper Money, take all aspects of your circumstances into consideration and use specific lending criteria when assessing your home loan application.

Are non-bank loans more expensive?

Many things can affect the interest rate you get offered; including market influences, the nature of the loan you’re looking at and credit assessment requirements.

At Pepper Money, every home loan application is individually assessed based on its own merits, with the assessment carried out by a real person who’ll take the time to understand your situation and look to provide loan options and interest rates suited to your individual circumstances.

Are non-bank lenders financially secure?

Absolutely. Non-bank lenders must fully comply with the same consumer credit rules and regulations as any bank does. Applications will only be approved if they satisfy our loan suitability criteria and credit assessment requirements. Ultimately the borrower must be able to pay back the loan. In fact, Pepper Money is funded by some of Oceania's leading financial institutions - so you can rest assured knowing that we can support your loan with us.

Do non-bank lenders have fewer options than the banks?

If anything, non-bank lenders tend to offer a wider range of home loan options that are suited to different niches. Often their options are more flexible than the banks and are tailored for borrowers who do not fit the traditional lending criteria of the banks.

At Pepper Money, we have home loan options for all types of borrowers; from full-time PAYG customers with a healthy deposit, to those self-employed and small businesses owners working with alternative documentation.

Our approach looks at all aspects of a person’s individual circumstances and credit requirements to help find the right loan for their situation.

You are protected by responsible lending laws. Because of these protections, the recommendations given to you about home loans are not regulated financial advice. This means that duties and requirements imposed on people who give financial advice do not apply to these recommendations. This includes a duty to comply with a code of conduct and a requirement to be licensed.

All loan applications are subject to the lender completing responsible lending checks and considering the borrower’s individual circumstances. Terms, conditions, fees and charges apply. Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.