In short: Private and non-bank lending is short-term, asset-backed finance priced for speed and risk. Rates commonly run from around 9% to well past 20% a year, terms are typically 3 to 12 months, and fees are substantial. It solves a narrow set of genuine timing problems. Used as a substitute for a real solution it is one of the fastest ways to lose a property, and we will tell you when that is what is happening.
We include this page because the option exists and clients ask about it. We include the warnings because most of what is published about it online is written by people paid to sell it.
The difference between "non-bank" and "private"
These are routinely conflated and they are not the same thing.
| Non-bank lender | Private lender | |
|---|---|---|
| What it is | A licensed lender funded by securitisation or wholesale funding rather than deposits | An individual, a family office or a small fund lending its own money |
| Regulation for a consumer loan | Must hold an Australian credit licence, comply with the NCCP Act and responsible lending, and be an AFCA member | The same obligations apply where the loan is regulated consumer credit. Many private loans are structured as business purpose loans, which sit outside the NCCP Act |
| Typical rate | Close to bank pricing, or a modest margin above | Materially higher; often quoted monthly |
| Typical term | 30 years | 3–12 months |
| Assessment | Full income assessment | Primarily the security property and the exit |
| Speed | 2–5 weeks | 3–10 days |
The regulatory distinction matters enormously. A loan declared to be for business or investment purposes is generally not regulated consumer credit, which means no responsible lending obligation, no comparison rate disclosure, and no automatic AFCA jurisdiction. If a lender or broker asks you to sign a business purpose declaration for money you are actually using for personal or home purposes, that is a serious problem, not a formality. Do not sign it. Read the NCCP Act and ASIC's guidance at moneysmart.gov.au.
Non-bank lending, by contrast, is entirely mainstream. Many of the best specialist, self-employed and near-prime home loans in Australia come from non-banks, and they are regulated, licensed and AFCA members. Most of what we arrange in the "non-bank" category is ordinary long-term lending at ordinary long-term prices. See bad credit home loans and low doc loans explained.
What private finance actually costs
Private lenders quote in ways that obscure the annual cost. Convert everything to an annual figure and a total dollar figure before you compare.
Worked example: a $200,000 caveat loan for 6 months
A business owner needs $200,000 for six months to settle a purchase while a sale completes.
| Line item | Amount |
|---|---|
| Amount advanced | $200,000 |
| Interest at 1.5% per month (18% p.a.), 6 months | $18,000 |
| Establishment fee, 2% | $4,000 |
| Lender's legal fees | $3,500 |
| Valuation | $1,200 |
| Broker fee (quoted in writing before you apply) | $4,000 |
| Discharge and administration | $800 |
| Total cost of the six months | $31,500 |
That is 15.75% of the amount borrowed, in six months, or an effective annual cost above 31%. Many private loans also capitalise the interest and fees, so the $200,000 you asked for becomes a $231,500 debt and you receive less than $200,000 in hand.
Now the real risk. If the sale that was going to repay it does not complete on time, default interest applies. Default rates of 2% to 4% per month are common. Six months of default interest at 3% a month adds another $41,600 to that balance, and the lender can move to enforce against the property.
The test that matters
Before any private loan, answer these three questions in writing:
- What exactly repays this, and when? "We will refinance" is not an exit. "Contract of sale exchanged on 14 October, settling 25 November, net proceeds $640,000" is an exit.
- What happens if that is late by three months? Model the cost. If a three-month delay makes the deal unviable, the loan is too tight.
- What is the worst case? In almost every case the worst case is losing the security property. If that property is your home, the answer is usually no.
If any of those three answers is uncomfortable, the honest advice is not a better private lender. It is a different plan.
When it genuinely helps
There is a real and legitimate use case. Private finance earns its cost when the problem is timing, the exit is contracted, and the alternative is losing more than the loan costs.
- A settlement date that cannot move while a contracted sale settles a fortnight later. Compare with a regulated bridging loan first, which is far cheaper where the borrower qualifies.
- A commercial opportunity with a short fuse, where a business can demonstrate the return exceeds the cost.
- A development completion where the project is 90% finished and the construction facility has run out of term, with pre-sales contracted.
- Clearing an urgent ATO or creditor position for a business that is otherwise solvent and has a refinance approved but not yet settled.
Notice what these have in common: a specific, evidenced, dated source of repayment.
When it does not
- To cover living expenses or ongoing mortgage arrears. This makes the position worse, quickly. If you are in arrears you have statutory rights to request a hardship variation from your existing lender, at no cost, and asking early protects your credit file. Read financial hardship rights and mortgage stress: what to do before you consider anything else.
- To buy a home you cannot otherwise afford. The loan has to be repaid in twelve months, and it will not be.
- Because a mainstream application was declined. A decline is information. The right response is usually to fix the file and reapply through a specialist lender at long-term pricing, not to pay 20% for a year.
- Where someone has approached you unsolicited offering to "save" your property. Check the licence, check for AFCA membership, and get independent legal advice.
How we work with it
- We quote any fee payable by you in writing before you apply, and we tell you what the lender pays us.
- We will not arrange a business purpose loan where the purpose is not genuinely business.
- We insist on independent legal advice for private loans secured over a residential property, and most reputable private lenders require it too.
- We model the default scenario, not only the base case, and we put it in front of you.
- Where the answer is that you should not do this, we say so and lose the transaction.
That is what the best interests duty is for. See best interests duty.
Frequently asked questions
What is a caveat loan?
A short-term loan secured by lodging a caveat over the title rather than registering a mortgage. It is fast because it avoids the first mortgagee's consent process, and it is expensive because the lender's security position is weaker. Terms are typically one to twelve months. A caveat can block you dealing with the property, so understand what you are granting. See caveats on property.
Is a second mortgage a good idea?
Sometimes, for a short and specific purpose with a contracted exit. A second mortgagee ranks behind your existing lender, so it prices for that risk and usually needs the first mortgagee's consent. The danger is stacking debt on a property without changing the underlying problem. If the goal is to consolidate debt at a sustainable rate, refinancing the first mortgage is nearly always better. See debt consolidation.
Do private lenders check my income?
Often only lightly, or not at all. They lend against the property and the exit. That sounds convenient and it is the reason the product is dangerous: nobody is testing whether you can actually repay. Where the loan is regulated consumer credit, the lender must assess suitability. Where it is a business purpose loan, that protection does not apply.
Are non-bank lenders safe?
Licensed non-bank lenders offering consumer home loans are regulated under the NCCP Act, must comply with responsible lending obligations and are AFCA members. They are not authorised deposit-taking institutions, which matters to depositors, not to borrowers. For many self-employed, near-prime and specialist borrowers a non-bank offers the best available terms in the market.
What happens if I cannot repay a private loan on time?
Default interest applies immediately, typically at a much higher rate, and fees are added. The lender can move to enforce its security, which for a mortgage means possession and sale, and for a caveat usually means applying pressure to force a refinance or sale. Extensions are sometimes available and carry another fee. This is why the exit must be contracted rather than hoped for.
Can I use private finance and then refinance to a bank?
That is the intended pattern, and it works when the bank approval is already in place or clearly achievable. It fails when the reason you needed private money in the first place — a credit issue, a serviceability shortfall, an unfinished building — is still unresolved twelve months later. Get the mainstream approval path mapped before you draw the private loan, not after.
Talk to GNT Finance
If someone has offered you short-term private finance, get a second opinion before you sign. We will price the real annual cost, model what a three-month delay does, and tell you whether a regulated bridging loan or a specialist lender does the job for a fraction of the money. Consultations in English, Nepali or Hindi, with an interpreter in your language on request. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Private lending carries substantial risk to the security property. Seek independent legal advice before entering any private loan or granting a caveat.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.