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Private lender vs bank: how to choose
Banks and private lenders solve different problems. Here's how the two actually differ on speed, assessment and cost, how to work out which one fits your deal, and how to tell one private lender from another.
The question isn't really "which is better" - a bank and a private lender are built to solve different problems, and most borrowers who end up choosing wrong picked based on rate alone, without weighing the thing rate can't buy: certainty within a timeframe.
What each is actually built for
| Bank | Private lender | |
|---|---|---|
| Headline rate | Lower | Higher, priced for speed and flexibility |
| Decision time | Weeks, through a credit committee | Hours for indicative terms, on a complete submission |
| What is assessed | Full serviceability, credit score, two years of financials | The property, the LVR and a credible exit |
| Income evidence | Tax returns and financial statements | Often self-declared, or an accountant's letter |
| Typical term | Long - often 15 to 30 years | Short - months to a few years |
| A past bank decline | Usually final | Not a barrier on its own |
Where a private lender is the right call
A private lender like Alphacon makes sense when timing is the binding constraint - a settlement date that won't move, a bank decline on a fundamentally sound deal, or income that's real but not yet reflected in two years of tax returns. Alphacon assesses on the security and a credible exit, issues indicative terms the same day on a complete submission, and on four of its five products a credit score isn't an approval criterion.
Where a bank still wins
If the deal isn't time-pressured and the borrower's income is straightforward and well-documented, a bank's lower rate and longer term will usually be cheaper over the life of the loan. Private lending is a purpose-built tool for a specific set of scenarios, not a general substitute for a standard mortgage. The strongest private loans are written with the bank refinance already in view as the exit.
The right question isn't which lender is cheaper in isolation. It's which one can actually get the deal done inside the time available.
How to tell one private lender from another
Private lending marketing tends to converge on the same handful of promises - fast, flexible, assessed on security. Those claims are mostly true across the industry, which means they're not what distinguishes one lender from another. The differences that matter show up in the fine print, and in how a lender behaves once a deal gets complicated.
- How fees are structured - a flat monthly fee behaves very differently to a percentage-based one as loan size changes
- Whether a risk fee applies, and what specifically reduces it
- Discharge and early exit terms - the notice period and whether any break cost applies
- Who actually makes the credit decision, and how quickly they can be reached
- Where the money comes from, and whether it is committed before the term sheet is issued
Questions worth asking directly
A lender's answers to a few specific questions will tell you more than any amount of marketing copy. Ask what happens if the exit is delayed, whether the quoted rate is genuinely achievable for your deal or a best-case headline figure, and whether you'll be dealing with the same person from enquiry through to settlement. The lender worth choosing is the one that tells you clearly what your deal won't qualify for, not just the one that says yes fastest.
Red flags worth taking seriously
Be cautious of a lender that won't put fees in writing before you apply, that's vague about who holds the funds and how settlement actually happens, or that pushes you toward a larger loan than the deal requires. A private lender should be able to explain, in plain terms, exactly how your specific deal is priced and why. You can check any Australian business's registration on ABN Lookup, and whether a business holds an Australian Credit Licence on ASIC's professional registers.
Common questions
- Is a private lender more expensive than a bank?
- On the headline rate, yes. Whether it costs more overall depends on how long the loan is held and what a missed deadline would cost. A short private facility that settles on time can be cheaper than a bank loan that arrives after the contract has fallen over.
- Can I go to a private lender after a bank has declined me?
- Yes. A bank decline on credit policy grounds doesn't rule out a private loan, because the assessment is built around the security and the exit. Tell the lender why the bank declined - it shapes the structure.
- Are private lenders regulated?
- Consumer credit is regulated under the National Consumer Credit Protection Act 2009. Business-purpose lending to companies and trusts generally falls outside that regime. Alphacon lends only for commercial purposes and doesn't hold an Australian Credit Licence.
- How do I refinance out of a private loan?
- Plan it before you draw. Most private loans are repaid by a sale or a bank refinance, so the file a bank will want - financials, valuations, lease evidence - should be assembled during the private loan's term, not after it ends.
Alphacon lends to companies and trusts for genuine commercial and investment purposes only - this isn't consumer credit. For the right deal, that trade-off between rate and speed is exactly what makes the numbers work.
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This article is general in nature and does not take your circumstances into account. It is not financial or credit advice. Alphacon Capital writes business-purpose loans secured by property.
