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, more flexible on structuring, and accommodates self-employed / asset-rich-income-light borrowers. 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, time to settlement, max LVR and interest-only term | 7.99-9.99% p.a. (residential first mortgage); 1-3 weeks to settlement; max LVR 70-75% (prime residential); interest-only term up to 5 years | Requirements differ by lender, product, borrower and transaction. Compare the actual terms and costs offered for your circumstances. |
| Capitalised interest | Standard option | Generally not available |
| 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 where bank financials aren't available
- Asset-rich, income-light borrowers (restructured business owners)
- 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
- Owner-occupied housing where the borrower wants the cheapest possible rate
- 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.
The price reflects the work. Private credit rates run 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. 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?Settlement timing depends on the application, valuation, due diligence, funding availability and completion of documentation. Tell us about any contractual deadline when you submit your enquiry.
- Is private credit regulated in Australia?Financial services licensing and consumer credit licensing are different regimes. Which requirements apply depends on the entity, its activities, the borrower and the purpose of the credit. An Australian financial services licence does not guarantee an investment and is not a substitute for APRA prudential supervision.