On the topic of hunting down the best loan, people often ask me whether it is safe to borrow with a smaller lender. The answer to that question is “Yes; because you have their money and not the other way around.”
Money is the same whomever you borrow it from; it’s how much you have to pay back that matters.
Some borrowers worry about what might happen if their lender gets into financial trouble. Keep in mind again that you have their money—so don’t worry too much. There are some smaller lenders whose names might not be readily familiar, but whose rates might be reason enough to get in touch and see what they have to offer.
Example: small lenders may save you big money
A 0.25% cheaper rate on a $300,000 home loan over 30 years is worth $43,536 in savings, which makes it well worth it to consider a lender you may not have heard of before.
The Australian mortgage industry is heavily regulated. Our lending practices are fairly conservative by world standards, as evidenced by our stability during the Global Financial Crisis (GFC). Small lenders have to play by the same rules as the big lenders, and their loan contracts are the same, in my experience.
There really is no such thing as a hidden fee, not if you take the time to read your loan agreement.
In all cases, every lender must abide by the terms in their loan contracts, which must spell out every fee they can possibly charge you. If you have a concern, you should have a lawyer read over your loan contract.
The smaller players in any industry have to try harder to win your business because they don’t have the advertising budgets or public profile that established businesses have. Consequently, they try to gain market share by offering more competitive products. In the case of lenders, this means cheaper loans.