Experienced with most Non Bank Lenders in NZ Creating Simple Financial Solutions.

In New Zealand, second-tier financial institutions are also known as non-bank financial institutions (NBFIs). This term covers a range of companies that offer financial services but don’t hold a banking license from the Reserve Bank of New Zealand. Some examples of second-tier financial institutions include finance companies, private lenders, credit unions, building societies, and peer-to-peer lenders.

Banks and other financial institutions holding the appropriate licenses are referred to as Tier 1. However, a Tier 2 financial institution shouldn’t be considered a ‘lesser’ alternative. In fact, they often provide products and services that major lenders don’t. Some cater to niche markets, and most of them still work alongside traditional banks and lenders.

The major difference between Tier 1 and 2 loans is where they come from. As the name suggests, Tier 1 loans come from a Tier 1 lender, such as a big bank. Tier 2 loans come from a Tier 2 lender, such as a finance company, credit union. The other distinguishing factor in a financial sense is the level of perceived risk.

Tier 1 loans offered through traditional banks come with stricter eligibility requirements. As such, they are seen as being less of a risk, because banks only give home loans to those with very strong financial circumstances. 

Tier 2 loans, on the other hand, are considered to be slightly riskier because they can be offered to those with poor credit history, the self-employed, or those who can’t provide as much financial documentation. Due to the increased level of risk, Tier 2 loans often have higher interest rates but they are also accessible to a wider range of people.

There are many reasons someone may consider using a second-tier lender over a traditional bank. Some of these reasons include:

•  Low credit rating: If your credit rating is poor, you may only be approved by certain Tier 2 lenders.
• Fast service: If your borrowing needs are urgent, Tier 2 lenders often make decisions on applications much more quickly than a regular bank.
• Unique borrowing needs: If you have a niche requirement, such as borrowing to fund a project that normal banks don’t deal with, you may find success with a Tier 2 lender.
• Self-employed: If you’re self-employed, you often can’t provide the types of documentation that Tier 1 lenders require. As such, you might be eligible for a low-doc home loan through a non-bank lender instead.
• Personalised services: Unlike regular banks who want everyone to fit into a neat box, Tier 2 lenders offer more flexibility and personalisation. You’ll find Tier 2 lenders more receptive to your individual needs.

You don’t even need to have any of the reasons above to use a Tier 2 lender. Many people are simply tired of dealing with big banks because they have a number of issues with them. If you want a better way to manage your finances, it’s worth considering an alternative. You may find that you answer one question for a Bank then they ask another 5!

Second-tier lending is booming in popularity right now for plenty of reasons. The major reason is that people want to own homes, but can’t always satisfy Tier 1 lending requirements. However, there are some other factors that influence this growth in popularity.

Banks and other Tier 1 lenders are heavily regulated and subject to strict regulations. Often, the red tape that annoys people when dealing with major banks isn’t even the bank’s fault. It’s to satisfy the requirements of their banking license. This makes life more difficult for borrowers who look for other options.

Speed is another key factor. Despite their size, Tier 1 lenders often take a long time to approve or deny a home loan application. Tier 2 Non Bank lenders are often faster, which customers appreciate.

It’s not just everyday homebuyers looking for an alternative to the big banks. Property investors, who are traditionally known as being quite savvy, are also linking up with Tier 2 lenders. Here are some of the reasons a property investor could choose to ditch their Tier 1 lender.

• Flexibility: Tier 2 lenders offer greater flexibility because their requirements aren’t as strict. This flexibility also makes it easier for property investors with niche interests. For example, getting loans for heritage buildings or other unique properties can be tough with a big bank, but a non-bank lender may be a different story.

   

• Speed: Property investors want to act fast when they spot a bargain. That’s not always possible when Tier 1 lenders take so long to process applications. Often, Tier 2 lenders make faster decisions, allowing savvy investors to snap up bargain properties before anybody else.

   

• Tailored solutions: Property investors don’t necessarily think about home loans in the same way an everyday New Zealander might. Investors often use complex financial structures and systems to build a wealth portfolio. While banks should applaud this innovation, they often make it too difficult with paperwork and regulatory requirements. Tier 2 lenders offer a more personalised service that considers your entire wealth strategy.

Although the practice of using Tier 2 lenders for property investment is quite new, Non Bank’s experienced financial advisors are well-equipped to assist property investors with their needs, no matter how diverse a portfolio they may have and can at times be be more flexible on borrowing ratios.