Whether it is your first home, next home or an investment property, figuring out where to get your home loan from could be a big and difficult decision with all of the options out there. Technology has streamlined the way some banks and lenders provide customer service and make their products accessible to the busiest of Australians. The industry continues to evolve, providing so many more options such as online lenders for those searching for a home loan provider.
If you’re ready to buy a house but don’t have time to stand in line at the bank, perhaps you need to consider turning to an online lender.
Need a hand with understanding home loan jargon? It might be a good idea to check out our Home Loan FAQs before reading on.
What is an online lender?
An online lender is one of the examples of an alternative to a traditional bank. Making online loans from one of these lenders allows customers to borrow money without having to leave the house.
These services differ from the major lenders – as known as the ‘big four’ banks – and could be placed outside of the finance industry. They could be technology companies that offer personalised home loan services, but do not hold a ADI license. Credit unions and building societies — which are customer- owned banks that provide banking services to customers — may also fall into this category.
According to Rate City, 30% of lenders are online. In fact, the fifth largest home loan lender, ING, is exclusively online. Online lenders could be comparable via comparison websites that could help customers choose the right one for them.
Some of them could be contactable all day, every day and may offer personalised home loans that are setup and monitored through digital systems without any of their customers having to visit a branch. In a world where people are using technology more, online lenders could allow easy access to financial customer service and may bring everything their customers need to their fingertips.
Who are the top online lenders?
As mentioned, online lenders can be compared through comparison websites. This allows customers to see their interest rates, fees and monthly repayments in one place based on how much they would like to borrow. These websites could also provide a list of some of the online lenders in this Australian market.
Here is a short breakdown of the lenders available on our panel:
ME Bank is owned by 26 of Australia’s leading industry super funds and has been in operation since 1994. They switched to an online-only model in 2012. They created Ed, which is a free online course to help those who may be lacking in financial knowledge learn how to manage their finances better. They offer 24/7 banking and savings protection via a deposit guarantee from the Australian government through the Financial Claims Scheme.
Do you have an online savings account with @mebank?— mozo.com.au (@mozo_au) May 27, 2020
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ING launched Australia’s first high interest, fee-free savings account about 20 years ago. In addition to personalised home loans, they offer transactional banking, superannuation, credit cards, personal lending and insurance, as well as 24/7 service through their contact centre. They have held a banking licence since 1994 and are regulated by the Australian Prudential Regulation Authority (APRA).
What are the pros and cons of online lenders?
There could be a variety of pros and cons that could come with online lenders if that’s the route you choose to go down. These pros and cons include various risks and benefits that could come with dealing with an online lender. They may be beneficial to consider when making a decision on who to trust before taking out a home loan.
Let’s discuss some of these in more detail.
You could get a great rate from one of these online lenders – one that you may not be able to get from one of the big four banks. Since they don’t have branches, online lenders don’t have to pay the operational costs that come with these retail locations. This may allow them to charge their customers lower, or even zero, fees and lower interest rates, possibly causing their customers to save money.
Many online lenders pride themselves on their low rates and may make this benefit one of the main selling points in an online lender’s marketing strategy. It may be important for all potential customers to compare offers and consider all of the options to make sure you’re getting their best deal possible.
All the different numbers and rate percentages can get confusing at times so deciding which loan is best can be tough if you’re doing it alone. Online lenders may have all of the features of their products in a neat and easy-to-read table on their website, which may be available before you even speak to anyone. You may also be able to find customer reviews online so you can see other people’s experiences with the company you’re interested in dealing with.
Online comparison websites, like Finder, may provide comparisons across all online lenders so you can find the answers you need without jumping from website to website. Customers can simply enter how much they’d like to borrow and over what period and compare multiple deals at once.
Online lenders require an online application, which may enable a more simple and quick application process for their customers. While branches may require customers to begin the process online and then visit a branch to complete their application, online lenders are exclusively digital and therefore may have streamlined services that could save their customers precious time. They may even use courier-type services that could easily verify their customers’ identities easily.
They may also be able to manage the process beyond their application via an online portal or an app. This could allow their customers to feel more secure about their loan and check their progress at any point in their home loan journey.
More accessible and flexible
Since applications are done online, customers may be able to complete them at any time, day or night. This may allow a particular level of flexibility that branch-based services may not be able to provide. Some online lenders may even have a 24/7 contact centre available if customers need to ask a question or make an enquiry outside of regular office hours.
They could also be flexible in the terms of the personalisation of their home loans. Online lenders could have more options and features available through the online hub for customers to pick and choose what they want and what they don’t want.
Good credit and low debt may be required
Now we’re starting to move on to the stuff that might not be so great when it comes to dealing with online lenders. If a customer doesn’t have a good credit score and low debt record, getting their loan approved from an online lender may be difficult and cause them to spend extra time than they need to.
Unfortunately this is how ‘outside the box’ customers can potentially find that they are at a disadvantage when dealing with an online lender and make be better off getting a loan from their current bank instead.
May be added to marketing lists
Comparing deals online often requires potential customers to provide some contact information in the form of an email address. When this happens, it’s possible for these websites to add these email addresses to their marketing list and flood people’s inboxes with numerous unwanted emails every day.
Likewise, if a customer decides to start their application with one online lender and then changes their mind, their email address may be retained for the same purpose. While customers can ask to be removed from a marketing list, this can be annoying and sometimes time-consuming.
Comfortable working online
Customers of online lenders need to be comfortable working online as that is where most of the work is done. There may be a phone call here and there, but they involve both lenders and customers to do most of the work in the online hub. Computer literacy may be essential for most people these days, but others who don’t use computers often may need a little more help in that department. In these cases, working with an online may be a messy and daunting experience.
Customers may be more inclined to go with a name they know and may therefore be more drawn to the big banks. If they haven’t heard of a certain lender, they may be apprehensive to go with them, requiring a huge level of trust needing to be built. Since they can’t see the person on the other side of the computer or phone, it could be more difficult to build a sense of trust with their lender, which could cause unnecessary stress and worry.
Requires tight cyber security
Since online lenders operate entirely online, they need to have a tight security system to protect their customers’ data. The comparison websites that are used to compare lenders may require a lot of personal information in order to thoroughly compare all lenders. At the same time, online lenders could require even more information when customers are dealing directly with them, including details about their financial history and samples of their identification documents.
Some online lenders may refer to their security systems on their website in order to give their potential customers peace of mind while considering their options. It is important for customers to look out for these details during the comparison process.
As online lenders become more competitive and continue to evolve, they may become more worthy of consideration when it comes to choosing a lender for your online loan. Be sure to weigh up all your options before making a commitment to try and get the best deal possible.
Words by Jessica Testa
Looking for an online lender? Contact eChoice. With access to 100s of mortgage products from over 25 different lenders, eChoice brokers have the resources to help you find the perfect home loan. Best of all? We do all the paperwork!