Private credit vs Bank lending
Private credit vs bank lending: speed, pricing, LVR, structuring, exit. When each fits, and how to decide between them.
Bank lending is cheaper but slower, more rigid on credit policy, and won't fund timing-sensitive or non-standard scenarios. Private credit is faster (days, not weeks), more flexible on structuring, and accommodates self-employed / portfolio / asset-rich-income-light borrowers, at a premium of typically 200-400bp over equivalent bank rates. Bank is right when the borrower clears the policy walls and timing is not the constraint. Private credit is right when the borrower can't, or when the deal window is shorter than the bank can move.
Side-by-side
| Attribute | Private credit | Bank lending |
|---|---|---|
| Indicative rate (residential first mortgage) | 6.99-9.99% p.a. | 5.99-7.49% p.a. |
| Time from submission to indicative | Same day | 5-15 business days |
| Time to settlement | 1-3 weeks | 4-8 weeks |
| Max LVR (prime residential) | 70-75% | 80% (90% with LMI) |
| Self-employed borrowers | Underwritten on commercial reality | 2 years of audited financials minimum |
| DTI cap | Not formulaic, file-by-file | Hard 6× DTI cap (APG223) |
| Capitalised interest | Standard option | Generally not available |
| Interest-only term | Up to 5 years | 1-5 years, then P&I |
| Exit-funded structures | Standard | Limited (bridging products only) |
| Decision authority | Internal credit committee | Centralised credit policy |
- Settlement gap funding, sale exit underwritten, but timing doesn't align with the bank's calendar
- Self-employed borrowers in the first 2 years of trading where bank financials aren't available
- Portfolio investors at the major-bank DTI cap who have equity to deploy
- Asset-rich, income-light borrowers (retirees, restructured business owners)
- Files that need to settle in days, opportunity capture, distressed acquisition, tax-event-driven liquidity
- Non-standard security (vacant land, specialised commercial, partially completed)
- Borrowers with recent credit events that disqualify them from major-bank lending
- Long-term P&I residential mortgages for PAYG borrowers inside policy
- Borrowers who clear major-bank serviceability and DTI without structuring
- Files where timing is not a constraint, 4-8 weeks to settle is fine
- Owner-occupied housing where the borrower wants the cheapest possible rate over 25-30 years
- Standard commercial investment files with strong tenant covenants and 5+ year leases
- Borrowers who value the bank relationship and product breadth (offset accounts, credit cards, business banking) above pricing on a single facility
In practice
Private credit and bank lending serve overlapping markets but solve different problems. The two compete on the same security types (residential, commercial, land) but the underwriting frameworks are structurally different.
Banks underwrite to policy: serviceability calculations, DTI caps, audited income evidence, standardised LVRs. Files that fit policy get cheap rates and long terms. Files that don't fit policy don't get funded, not because the deal is bad, but because the policy doesn't have a path to yes. The bank's economics are built on volume in the policy-fit segment.
Private credit underwrites to commercial reality: the file is decided on the security, the sponsor and the exit, not against a serviceability spreadsheet. A self-employed borrower with strong recent BAS trading but no two-year audited financials is a clean file in private credit, the credit team can see the cashflow and the security. The same file fails most bank serviceability calculators.
The price reflects the work. Private credit rates run 200-400bp above bank equivalents because the underwriting is bespoke per file rather than templated, the funding source is wholesale rather than retail deposits, and the credit committee is willing to accept structuring complexity that doesn't fit standard policy buckets.
The choice between the two isn't "which is better." It's: does the file fit bank policy in the timeframe required? If yes, take the bank rate. If no, or if the bank window is longer than the deal window, private credit is the path. Most experienced borrowers and brokers use both, depending on the file.
Frequently asked
- Is private credit always more expensive than a bank?On rate alone, yes, typically 200-400bp above the equivalent bank product. But the all-in economic outcome can favour private credit when the bank can't move in time (opportunity cost of missed deal) or when bank policy won't approve the file at all. Compare total economic outcome, not headline rate alone.
- Can I refinance from private credit to a bank?Yes, refinance to a major bank at the end of the private credit term is the most common exit structure. Private credit is often used as a bridge through a specific event (settlement, conduct period, income stabilisation) after which the borrower fits bank policy and refinances out. Plan the refinance exit at entry.
- How fast can private credit settle?Indicative terms on the same day. Formal approval typically 3-7 business days. Settlement within 1-3 weeks depending on valuation and legals. Specific files have settled inside 5 business days where everything is ready at submission.
- Is private credit regulated in Australia?Yes. Private credit is provided under the Australian Financial Services Licence regime. Archer Wealth lends under AFSL 548263 (held by Archer Wealth Capital Pty Ltd). Consumer credit (NCCP-regulated) and wholesale credit have different regulatory frameworks but both apply.