Are online lenders safe?

Like other banks and financial institutions, online lenders must follow certain laws and regulations set by regulatory bodies. In particular, they must take steps to ensure that it is not beyond a borrower’s means to repay a loan, as well as provide borrowers with relevant information to make informed decisions along the way. .

Online lenders that are also Authorized Depository Institutions (ADIs) are regulated by the Australian Prudential Regulation Authority (APRA). Some examples are 86400, ING and UBank.

However, many online lenders do not have an ADI license because they do not offer savings accounts or term deposits. These include Athena Home Loans, Homestar and loans.com.au.

Although non-bank lenders are not regulated by the APRA, they are still subject to strict credit laws and can be prosecuted by the Australian Securities & Investments Commission (ASIC) if they engage in misconduct. misleading or misleading.

What happens to my mortgage if an online lender goes bankrupt?

In case an online lender you signed up with goes bankrupt, chances are you will not suffer. While it’s natural to worry about your mortgage, procedures are in place to ensure that borrowers emerge unscathed from a lender’s bankruptcy.

What is most likely to happen is that your lender will be absorbed by a larger bank or their loan portfolio will simply be sold to another lender. In both scenarios, you will continue to make your mortgage payments as before (unless your rate changes, in which case refinancing is still an option).

As for any money held in a clearing account, it will be covered by the Financial Claims Scheme, a government initiative that protects deposits of up to $250,000 in the event of the failure of a bank, building society or company. a credit union.

If an online lender has an ADI license (and they legally can’t offer clearing accounts without it), the government will activate the FCS and hand things over to APRA, who will be responsible for paying customers the money owed to them.

What is an online lender’s responsibility to borrowers?

In recent months, the government has announced its intention to reduce ASIC’s role in enforcing responsible lending obligations, arguing that a less restricted flow of credit is needed to accelerate the pace of economic recovery.

For borrowers, this means lenders will be a little easier to live with when assessing their ability to service a mortgage. There will still be an obligation to inform customers of their rights and of the contracts offered to them, but the requests will otherwise be somewhat lightened.

So, if you are considering going with an online lender, you should take extra care to ensure that all of the information in your application is accurate. Since credit grantors aren’t as likely to face the consequences of poor lending decisions (at least for now), the onus is on you.

To see what customers are saying about online lenders, visit our rates and reviews section. And to see how they compare to others on the market, browse our home loan comparison page, where you can filter your search by rate and type.

* ATTENTION: This comparison rate only applies to the example or examples given. Different amounts and durations will result in different comparison rates. Costs such as withdrawal charges or prepayment charges, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate shown is for a secured loan with monthly principal and interest repayments of $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges, and therefore the total cost of the loan, may vary depending on your loan amount, loan term and your credit history. Actual repayments will depend on your personal circumstances and changes in interest rates.

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