Choosing between a private lender and bank affects your costs, timeline, and approval chances. Here's the complete comparison.
Quick Comparison Table
| Factor | Banks | Private Lenders |
|---|---|---|
| Interest Rates | 5.5-8% p.a. | 7-18% p.a. |
| Approval Time | 3-8 weeks | 3-14 days |
| Credit Requirements | Strict | Flexible |
| Income Verification | Extensive | Minimal |
| Loan Terms | 10-30 years | 1-5 years typical |
| LVR | Up to 95% (with LMI) | 60-75% typically |
| Application Complexity | High | Low |
| Fees | $500-$1,500 | $2,000-$10,000 |
When Banks Are Better
Choose banks when:
✅ Perfect credit score (700+) ✅ Provable income (PAYG with payslips) ✅ Standard property (metropolitan house/unit) ✅ Long-term loan (10-30 years) ✅ You can wait (4-8 weeks for approval) ✅ Want lowest rate (cost is priority) ✅ Stable employment (2+ years same employer)
Bank Benefits:
- Lowest interest rates (5.5-8%)
- Longest terms (up to 30 years)
- Lowest fees
- Offset accounts
- Redraw facilities
- Rate discounts
When Private Lenders Are Better
Choose private lenders when:
✅ Speed is critical (need funds in days/weeks) ✅ Credit is impaired (defaults, late payments, bankruptcy) ✅ Self-employed (difficult to prove income) ✅ Bank declined (any reason) ✅ Unusual property (rural, unique construction) ✅ Short-term need (bridging, renovation) ✅ Complex situation (multiple income sources, trusts, etc.)
Private Lender Benefits:
- Fast approval (3-14 days)
- Focus on equity, not credit
- Flexible assessment
- Accept complex situations
- Minimal documentation
- Individual review
Real Cost Comparison
Scenario: $500,000 Loan
Bank Loan:
- Rate: 6.5% p.a.
- Term: 30 years
- Monthly (P&I): $3,160
- Total interest (30yr): $637,000
- Fees: $1,000
Private Loan:
- Rate: 11% p.a.
- Term: 2 years then refinance to bank
- Monthly (I/O): $4,583
- Interest (2yr): $110,000
- Fees: $15,000 (establishment, legal, valuation)
- Total 2yr cost: $125,000
After 2 years, refinance to bank:
- Saved deal worth more than $125,000 cost
- Or improved credit to qualify for bank
- Or business generated profit exceeding cost
The calculation: Is the opportunity worth $125,000?
Detailed Factor Comparison
1. Interest Rates
Banks:
- Residential: 5.5-7.5% p.a.
- Investment: 6-8% p.a.
- Commercial: 6.5-8.5% p.a.
Private Lenders:
- Residential: 7-15% p.a.
- Investment: 8-16% p.a.
- Commercial: 9-18% p.a.
- Short-term: 12-48% p.a.
Difference: Private lenders 2-10% higher typically
2. Approval Time
Banks:
- Application review: 3-7 days
- Valuation: 5-10 days
- Assessment: 7-14 days
- Approval: 3-6 weeks total
- Settlement: Add 2-4 weeks
- Total: 5-10 weeks
Private Lenders:
- Application review: 1-2 days
- Valuation: 2-5 days
- Approval: 3-7 days total
- Settlement: 3-7 days
- Total: 1-2 weeks
Difference: Private lenders 3-6x faster
3. Credit Requirements
Banks:
- Auto-decline if:
- Unpaid defaults
- Bankruptcy within 5-7 years
- Recent late payments
- Credit score below 650
- Consider full credit history
- Strict serviceability assessment
Private Lenders:
- Review individual circumstances
- Accept:
- Paid defaults
- Discharged bankruptcy (3+ years)
- Explainable late payments
- Lower credit scores (if equity strong)
- Focus on current situation
Difference: Private lenders far more flexible
4. Income Verification
Banks Require:
- PAYG: Payslips (3 months) + tax notice
- Self-employed: Tax returns (2 years) + financials
- All income sources verified
- Detailed expense assessment
- 20+ documents common
Private Lenders Accept:
- Bank statements showing deposits
- Business cash flow
- Asset position
- Sometimes no income proof (asset-based lending)
- 5-10 documents typical
Difference: Private lenders much less documentation
5. Loan Terms
Banks:
- Residential: 10-30 years standard
- Interest-only: 1-5 years then P&I
- Commercial: 5-30 years
- Long-term focus
Private Lenders:
- Typical: 1-5 years
- Often interest-only
- Balloon payment common
- Short-term focus
Difference: Banks offer much longer terms
The "Bridge and Refinance" Strategy
Many borrowers use both strategically:
Year 1-2: Private Lender
- Get approved despite current issues
- Fast access to funds
- Seize opportunity
- Cost: Higher interest
During private loan:
- Build/rebuild credit
- Improve income documentation
- Stabilize situation
- Make all payments on time
Year 2-3: Refinance to Bank
- Now qualify for bank loan
- Lower rate (save $20,000-$50,000/year)
- Longer term
- Better features
Result: Best of both worlds
Decision Framework
Ask yourself:
How urgent?
- Need funds in 2 weeks? → Private
- Can wait 6-8 weeks? → Bank
What's my credit?
- Perfect credit? → Bank
- Any impairments? → Private
Can I prove income easily?
- PAYG with payslips? → Bank
- Self-employed/complex? → Private
How long do I need the loan?
- 10+ years? → Bank
- 1-5 years? → Either
Is rate or approval most important?
- Lowest rate critical? → Bank
- Getting approved critical? → Private
What's my exit strategy?
- Stay long-term? → Bank
- Refinance in 2 years? → Private okay
Ready to explore your best option? Connect with both banks and private lenders to compare.