Private Lending Rates in Australia Explained

Private lending rates are often misunderstood by borrowers who are more familiar with traditional bank interest rates. While private lending can provide faster and more flexible access to funds, the way rates are set differs significantly from bank lending.

This guide explains private lending rates in Australia explained, including how rates are determined, what factors influence pricing, and why private lending rates differ from bank loans.

If you are new to private lending concepts, you may find it helpful to start with our overview of private lending in Australia.

What Are Private Lending Rates

Private lending rates refer to the interest charged on loans provided by non bank lenders and private credit funds. These loans are typically secured by property and structured for business or investment purposes.

Unlike banks, private lenders do not price loans using standard retail mortgage models. Instead, rates reflect risk, loan structure, and time horizon rather than borrower income alone.

How Private Lending Rates Are Determined

To understand private lending rates in Australia explained, it is important to understand how lenders assess pricing.

Private lending rates are influenced by several key factors.

Loan to Value Ratio

Loan to value ratio, commonly referred to as LVR, is one of the most important pricing drivers.

Lower LVRs generally result in lower interest rates because the lender’s risk is reduced.

Higher LVR scenarios may still be funded, but usually attract higher pricing.

You can learn more about this concept in our guide to loan to value ratios in private lending.

Property Type and Location

The type and location of the security property significantly affect private lending rates.

Properties that are:

• located in strong metropolitan markets

• easily saleable

• standard in construction

are typically priced more favourably than specialised or regional assets.

Loan Term and Structure

Private loans are often short to medium term.

Shorter loan terms may attract different pricing structures, such as:

• interest only repayments

• capitalised interest

Loans structured for specific purposes, such as bridging or development, are priced according to the complexity involved.

For example, rates for bridging loans often reflect the short term and time sensitive nature of the funding.

Exit Strategy Risk

Exit strategy is a critical component of private lending pricing.

Lenders assess:

• how the loan will be repaid

• the timing of the exit

• the reliability of the proposed outcome

A clear and realistic exit strategy can positively influence pricing, even where other risk factors exist.

Typical Private Lending Rate Ranges in Australia

Private lending rates in Australia vary widely depending on risk and structure.

While it is not appropriate to treat rates as fixed benchmarks, private lending rates are typically higher than bank rates due to:

• increased risk tolerance

• faster approval timeframes

• flexible assessment criteria

Understanding private lending rates in Australia explained requires viewing rates in context rather than comparing them directly to standard bank loans.

How Private Lending Rates Compare to Bank Rates

Bank rates are generally lower because:

• banks rely on long term funding models

• risk is spread across large portfolios

• approval criteria are more restrictive

Private lending rates reflect:

• shorter loan durations

• asset based risk assessment

• bespoke loan structures

This difference explains why private lending may be suitable even when bank finance is not available.

First Mortgage Versus Second Mortgage Rates

The position of the loan on title also affects pricing.

First Mortgage Rates

First mortgage loans sit in the primary security position and generally attract lower rates than second mortgages.

For more detail, see our overview of first mortgage loans.

Second Mortgage Rates

Second mortgages are registered behind an existing first mortgage and therefore carry higher risk for the lender.

As a result, second mortgage rates are typically higher. You can read more in our guide to second mortgage loans.

Fees and Total Cost Considerations

Private lending costs are not limited to interest rates alone.

Borrowers should also consider:

• establishment fees

• legal costs

• valuation fees

• exit fees where applicable

Evaluating total cost rather than headline rate is essential when assessing private lending options.

Regulatory Context in Australia

Most private lending facilities are structured as business purpose or investment loans.

These loans operate within Australian legal frameworks, but may be exempt from consumer credit legislation where appropriate. Borrowers are usually required to obtain independent legal advice.

When Private Lending Rates May Not Be Suitable

Private lending may not be appropriate where:

• long term low cost finance is required

• there is no clear exit strategy

• the property does not support the required LVR

In these cases, traditional bank finance may be more suitable.

Frequently Asked Questions About Private Lending Rates in Australia Explained

Why are private lending rates higher than bank rates?

Private lending rates reflect higher risk tolerance, shorter loan terms, and faster access to funds.

Do private lending rates vary between lenders?

Yes. Rates vary depending on lender appetite, loan structure, and risk profile.

Are private lending rates fixed or variable?

This depends on the loan structure and lender terms.

Can private lending rates be negotiated?

In some cases, pricing may improve where risk factors are reduced.