We’re leaving banks for online lenders

A NEW wave of online-only lenders is giving bank customers food for thought, in the form of massive savings.

Experts say Aussies are fed up with the major banks and a raft of minor lenders are bidding for their customers.

Social researcher Mark McCrindle said Australians once took pride in their banks, but eventually realised loyalty only went one way.

“It’s not new to have a dislike for the big banks, but we used to still trust them,” he said.

“Recent events like the royal commission have removed that last trust principle. It’s not just the odd current affairs story about a bank closing a farm anymore, it’s story after story.”

In the past, web-based lenders struggled to gain the trust of sceptical consumers, but the savings on offer are hard to argue with.

Rate City crunched the numbers, comparing average fully-featured discount variable rate loans from the Big Four banks, with products from comparable online lenders. The results showed someone with a $350,000 mortgage could save more than $82,000 over a 30year loan term by going with the lowest online lender instead of a major bank. For a $550,000 mortgage, the potential savings exceeded $118,000.

The numbers were too much to ignore, said RateCity money editor Sally Tindall.

“Refinancing is hard for some people, it can be a lot of forms and paperwork, but three or four hours of work to save $118,000 makes a lot of sense,” Ms Tindall said.

The best deals of the online lenders came from Reduce Home Loans and BIDeloan with 3.39 per cent interest rates. Just behind on 3.49 per cent were Homestar Finance, Easy Street and Freedom Lend. Next were iMortgage and Tic Toc (3.52 per cent) and then Pacific Mortgage Group and Online Home Loans (3.54 per cent).

These offered big savings when compared with Big Four averages of around 4.5 per cent for a $350,000 loan and 4.4 per cent for $550,000 loan.

Online lenders need lower overhead costs, so customers may miss out on some features.

“You can’t walk into a bricks and mortar branch and ask for help,” Ms Tindall said. “You’ve got to be comfortable with a different way of communicating.” She suggested testing a lender’s call centre or web chat capability before signing up.

“You have to be able to trust your lender, otherwise you could be worried about it for 25 years,” Ms Tindall said.

“But they’re all governed by the national consumer protection act.”

Customer owned banks, formerly known as credit unions or mutuals, are also reporting a spike in interest.