Are online lenders safe?

Like other banks and financial institutions, online lenders must adhere to certain laws and regulations laid out by regulatory bodies. In particular, they have to take steps to ensure it’s not beyond a borrower’s means to pay off a loan, as well as provide borrowers with relevant information to make informed decisions along the way.

Online lenders that are also authorised deposit-taking institutions (ADIs) are regulated by the Australian Prudential Regulation Authority (APRA). Some examples are 86 400, ING, and UBank. 

Many online lenders don’t have an ADI license however, as they’re not in the business of providing savings accounts or term deposits. These include Athena Home Loans, Homestar, and loans.com.au.

While non-bank lenders aren’t regulated by APRA, they’re still subject to strict credit legislation, and can be ruled on by the Australian Securities & Investments Commission (ASIC) if they’re found engaging in misleading or deceptive conduct.

What happens to my mortgage if an online lender goes bust?

In the off chance an online lender you signed up with goes under, there’s little chance you’ll suffer as a result. While it’s natural to worry about your mortgage, there are procedures in place to make sure borrowers emerge from a lender’s collapse unscathed.

What’s most likely to happen is your lender will be absorbed by a larger bank, or its loan book will simply be sold to another lender. In both scenarios, you’ll continue making your mortgage repayments as before (unless your rate changes, in which case refinancing is always an option).

As for any money held in an offset account, this will be covered by the Financial Claims Scheme, a government initiative which protects deposits of up to $250,000 in the event that a bank, building society or credit union goes under. 

If an online lender holds an ADI licence (and they legally can’t offer offset accounts without one), the government will activate the FCS and turn things over to APRA, which will be responsible for paying customers the money they’re owed.

What is an online lender’s responsibility to borrowers?

In recent months, the government has announced plans to reduce ASIC’s role in enforcing responsible lending obligations, arguing that a less restricted flow of credit is necessary to speed up the pace of economic recovery.

For borrowers, this means lenders will be a bit more easy-going when assessing their ability to service a mortgage. There will still be an obligation to inform customers of their rights and the contracts being offered to them, but applications will otherwise be a bit streamlined.

So if you’re thinking of going with an online lender, you should take extra care to ensure all the information in your application is accurate. Since credit providers aren’t as likely to face consequences for poor lending decisions (at least for the time being), the burden of responsibility falls on you.

For a look at what customers say about online lenders, visit our rate and review section. And to see how they compare to others in the market, browse our home loans comparison page, where you’ll be able to filter your search by rate and type.

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 472 home loans.
Last updated 14 June 2024 Important disclosures and comparison rate warning*
  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    6.25% p.a.
    fixed 3 years
    6.20% p.a.

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

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    Details
  • Variable Home Loan 90

    Principal and Interest, LVR <90%

    interest rate
    comparison rate
    Initial monthly repayment
    6.04% p.a. variable
    6.06% p.a.

    Affordable home loan rate for buyers or refinancers. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.

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    Details
  • The Better Home Loan Special Offer

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.14% p.a.

    Enjoy a variable rate home loan with a bunch of features from Police Credit Union. Make extra repayments at any time without penalty. No monthly, annual or upfront fees. Free online redraw. Minimum 20% deposit. Qualifying criteria applies. Minimum loan amount is 200K. For new customers only. Mozo Experts Choice Home Lender Credit Union of the Year 2023.

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    Details
  • Discount Variable Home Loan

    Owner Occupier, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a. variable
    6.01% p.a.

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

    Compare
    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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