Private Lending vs Bank Loans: Which Is Right for Your Next Property Purchase?

Buying a property is one of the biggest financial decisions you’ll ever make. Whether you’re purchasing your first home, expanding your investment portfolio or funding a business property, securing the right finance is key. Traditionally, most buyers turn to banks for a home loan, but private lending has become an increasingly popular alternative in Australia.

Both private loans and bank loans come with their own rules, benefits and risks. The right option for you depends on your personal circumstances, financial goals and how quickly you need access to funds. In this guide, we’ll break down the differences between private lending and bank loans to help you decide which path might be the smarter choice for your next property purchase.

What Is a Bank Loan?

A traditional bank loan or a credit union loan is a loan obtained from a traditional bank. When you make an application, the bank considers your finances, credit and income. They have strong guidelines prior to advancing a loan. 

Banks are likely to provide better interest rates than the ones provided by privately funded lenders. They may also span long years in repayment. This helps it to have easier monthly payments.

But the process is often slow. Getting approval can take weeks or even months. The bank can decline your loan application in case your credit rating is poor or because you fell short of their lending criteria.

How Bank Loans Work

When you take out a bank loan, you enter into a formal agreement. The bank provides money for your property purchase. You agree to repay it in regular instalments over a set period, often 20 to 30 years.

The bank looks closely at:

• Your credit score – a record of how well you have managed debt in the past.

• Your income – proof that you can repay the loan.

• Your savings – to show you have money for a deposit and ongoing costs.

• Your debt-to-income ratio – how much debt you already carry compared to your income.

Benefits of Bank Loans

Bank loans remain a popular choice for many borrowers because they provide stability and long-term value. Some of the main advantages include:

• Lower interest rates – you will usually pay less over the long term.

• Long repayment terms – often up to 30 years, which lowers monthly payments.

• Trusted institutions – banks are regulated and secure.

• Extra services – banks often provide offset accounts, redraw facilities and more.

Drawbacks of Bank Loans

Despite their advantages, bank loans are not the right fit for everyone. Some common challenges include:

• Slow process – approval can take weeks or months.

• Strict rules – many people do not meet the lending requirements.

• Less flexible – banks are not as open to unique situations.

What Is Private Lending?

Non-bank investors or firms provide private lending. Such lenders are interested in the value of the property and the deal itself instead of your financial background.

Private loans are faster to arrange. Many lenders can provide approval in just a few days. This makes them popular for buyers who need to act quickly in a hot property market.

However, the interest rates are often higher than those of banks. Repayment terms are usually shorter as well. For this reason, private loans are often used as short-term solutions rather than long-term commitments.

How Private Lending Works

Private lenders operate differently from banks. Instead of focusing heavily on your credit history or income, they pay closer attention to the property’s value and your exit strategy, that is, how you plan to repay the loan through refinancing, selling the property or other means.

Because of this approach, private lending can be a lifeline for borrowers who may not qualify for a traditional bank loan. It’s also a common option for investors who need quick access to funds. Approval is often much faster, with simpler paperwork and funding available in days rather than weeks. The trade-off is higher interest rates and fees, as private lenders take on more risk.

Benefits of Private Lending

Private loans come with unique advantages, especially for those who need quick and flexible solutions.

• Fast approval – funds can be ready in a matter of days.

• Flexible requirements – less focus on credit scores and more on the property.

• Good for urgent deals – useful in auctions or time-sensitive purchases.

• Option for unusual cases – helps people banks often reject.

Drawbacks of Private Lending

Despite the flexibility, private lending also has important downsides to consider.

• Higher costs – interest rates and fees are higher.

• Short terms – loans usually last months to a few years.

• Not ideal for long-term holding – best used as a short-term fix.

Which One Is Right for You?

Choosing between a bank loan and a private lender depends on your needs. If you have strong credit, a stable income and can wait for approval, a bank loan is usually the best choice. It will save you money over time.

If you need funds quickly, have a low credit score or need a flexible option for a unique situation, private lending may be the answer. It can help you secure a property that might otherwise slip through your fingers.

Questions to Ask Before Choosing a Loan

Before committing, it helps to weigh your situation carefully. Ask yourself:

• How quickly do I need the money?

• Am I confident in my credit history and income stability?

• Can I manage higher repayments if I go with private lending?

• Do I plan to hold this property long-term or short-term?

• What is my exit strategy if I use a private loan?

Thinking through these questions makes the choice clearer and ensures you choose an option that matches your goals.

Final Thoughts

Both private lending and bank loans have their place in property finance. Banks offer lower costs and stability, but they are slow and strict. Private lenders bring speed and flexibility, but at a higher cost.

Your choice depends on what matters most to you: long-term savings or fast access to funds. For some buyers, the best path is to start with private lending and later refinance with a bank.

If you are unsure which option fits your property goals, it helps to get expert advice. Reach out to Richmond Residential for guidance and financial services tailored to your needs.