Comparing Banks and Non-Bank Lenders for Home Loans: What’s the Difference and Does It Matter?

The difference between banks and non-bank lenders comes down to funding models, regulation, and reputation. But for borrowers, the real-world impact is about choice, flexibility, and cost.

When you start shopping around for a home loan, you’ll quickly discover there’s more choice than just the “big four” banks. A growing number of non-bank lenders—ranging from credit unions to online lenders and specialist mortgage providers—are competing for a slice of the market. That’s great news for borrowers because more competition usually means sharper rates, more flexible products, and service tailored to different needs.

But it also raises an important question: should you stick with the traditional stability of a bank, or could a non-bank lender offer a better deal for your situation? Let’s unpack the differences, weigh up the pros and cons, and explore whether it really matters which path you choose.

What is the difference between banks and non-bank lenders?

Banks are authorised deposit-taking institutions (ADIs). That means they’re regulated by the Australian Prudential Regulation Authority (APRA), they can accept deposits, and they’re covered by the government’s Financial Claims Scheme (which guarantees deposits up to $250,000 per person per institution).

Non-bank lenders, on the other hand, don’t hold deposits and aren’t ADIs. Instead, they source their funding from wholesale markets, securitisation (bundling loans and selling them to investors), or backing from larger institutions. They’re regulated by ASIC rather than APRA, which means they must meet responsible lending obligations and consumer protection standards but don’t have to hold capital reserves in the same way banks do.

On the surface, both banks and non-banks can provide home loans. The key differences come down to how they’re funded, regulated, and the flexibility they offer.

The case for banks

For many borrowers, banks remain the first stop when it comes to mortgages. Here’s why:

1. Brand trust and reputation

Banks have been around for decades (some for over a century) and carry the weight of established reputations. For risk-averse borrowers, this familiarity can feel reassuring.

2. Range of products

Most banks offer a wide suite of products beyond home loans—transaction accounts, credit cards, insurance, financial planning, even share trading platforms. If you want to do “all your banking under one roof,” a bank can make this convenient.

3. Stability and funding security

Because banks can draw on depositors’ money and are tightly regulated by APRA, they’re often viewed as more stable. They may also be better able to absorb funding shocks or economic downturns.

4. Competitive fixed rates and package deals

Banks can sometimes offer sharper fixed-rate loans or bundled “professional packages” (home loan, credit card, offset account, fee waivers) that appeal to high-income earners or investors.

The downsides of banks

Of course, banks aren’t perfect.

• Pricing power: Because of their size and brand recognition, banks don’t always offer the lowest rates in the market. Many borrowers pay a “loyalty tax” by sticking with their bank without realising better deals are available elsewhere.

• Slower processes: Large institutions can be bureaucratic. Loan approvals may be slower, and customer service can feel impersonal.

• Strict lending criteria: Banks often have rigid policies that may exclude borrowers with non-standard income, self-employed clients, or those with blemished credit histories.

  
  

The case for non-bank lenders

Non-bank lenders have been steadily growing their market share in Australia, largely because they bring competition and innovation to the mortgage space. Here’s what sets them apart:

1. Competitive rates and fees

Without the overheads of large branch networks, non-banks often operate leaner and can pass those savings on to customers. Their variable rates, in particular, can be sharper than the big banks.

2. Flexible lending criteria

Non-bank lenders tend to be more open-minded about different income types—think contractors, freelancers, small business owners, or investors with multiple properties. They may also offer solutions for borrowers with credit impairments.

3. Faster turnaround times

Many non-bank lenders specialise in efficient, digital-first application processes. This can mean quicker pre-approvals and settlements compared to banks bogged down by legacy systems.

4. Customer service focus

Because they’re competing against much bigger brands, many non-bank lenders pride themselves on personalised service. Borrowers often report dealing directly with decision-makers rather than being shuffled between departments.

The downsides of non-bank lenders

• No deposit guarantees: Since they’re not ADIs, non-banks don’t offer government-backed protection on deposits. However, for a borrower with a mortgage, this is less relevant (you’re not placing deposits with them, you’re borrowing).

• Potentially higher funding costs: Non-banks rely on wholesale markets. In times of financial stress, their funding costs can rise more sharply than banks, which could lead to higher rates for customers.

• Limited product range: Many non-banks focus almost exclusively on mortgages, so you may not get the same range of packaged financial products.

• Less brand recognition: Some borrowers feel less comfortable trusting a lesser-known lender, even though they’re regulated and legitimate.

  
  

Does it really matter which you choose?

The short answer: yes, but not in the way you might think.

For most borrowers, the choice between a bank and a non-bank lender shouldn’t be about which is “better” in theory—it should be about which is better for you in practice. What matters most is:

• The interest rate and fees you’ll pay over the life of the loan.

• The loan features you’ll actually use (offset accounts, redraw, portability).

• The lender’s policies and whether they suit your circumstances (income type, credit history, property type).

• The level of service and how important it is to you to have a “big name” versus a nimble specialist.

  
  

When a bank might suit you better

• You like the security of a well-known brand.

• You want to bundle products (home loan + everyday banking + credit card).

• You’re seeking sharp fixed rates or professional packages.

• You have a straightforward financial situation and want the perceived stability of a bank.

  
  

When a non-bank lender might suit you better

• You want the lowest possible variable rate.

• You’re self-employed, a contractor, or have complex income.

• You value fast approvals and streamlined processes.

• You’re open to borrowing from a lesser-known lender if it means saving money.

  
  

The role of a mortgage broker when comparing Banks

Here’s where things get easier: you don’t have to figure all this out yourself. Mortgage brokers work with both banks and non-bank lenders, comparing products across the market to find the right fit. They can cut through the noise, explain the differences, and help structure your loan to suit your needs.

At Etairos Finance, we regularly help clients who assumed they had to stick with their bank—only to discover a non-bank lender offered a better solution, or vice versa. The key is understanding your goals and circumstances first, then matching them with the right lender.

Final thoughts

The difference between banks and non-bank lenders comes down to funding models, regulation, and reputation. But for borrowers, the real-world impact is about choice, flexibility, and cost.

Instead of asking “are banks better than non-banks?”, ask:

• Which lender will approve my loan based on my situation?

• Which one offers the features I’ll use?

• And which one will cost me less over the long term?

In a competitive lending environment, the best option isn’t always the biggest or most familiar—it’s the one that lines up with your needs.

General Advice Warning: This article is general information only and doesn’t take into account your personal circumstances. Always seek professional advice before making financial decisions. At Etairos Finance, we understand the differences between banks and non-bank lenders and can guide you to the right option for your situation.

If you’re ready to explore your choices and want expert support, get in touch—we’re friendly, knowledgeable, and here to help.