Why Is Private Credit More Expensive Than Normal Bank Lending?
The bank quotes a 6, we quote an 11.95. But rate is only half of a price — the other half is time. A worked $2,000,000 comparison over 12 months and 30 years.
It's the first question almost every borrower asks, and it's a fair one. The bank quotes a rate starting with a 6. We quote a rate starting with a 1. On the face of it, private credit looks expensive.
But rate is only half of a price. The other half is time. And when you put both halves on the table, the picture changes quite a lot.
First, why the rate is higher
Private credit isn't more expensive because someone decided to charge more. The rate reflects what the loan actually is.
Speed costs money. A bank credit process is built to be thorough, not fast. Full financials, valuations in the queue, credit committee, conditions, settlement - four to twelve weeks is normal, and it can blow out further. A private lender that can settle in days is holding capital ready to move, underwriting on the asset rather than three years of tax returns, and carrying the cost of that readiness. You're paying for certainty of timing, and timing is often the whole reason the deal exists.
The capital is priced differently. Banks fund loans largely with deposits, which is about the cheapest money in the economy, and they're backstopped by a regulatory framework built around that. Private lenders fund from investors who expect a return well above a term deposit. The lender's cost of funds is simply higher before a single basis point of margin is added.
Risk is priced. Banks manage risk by declining. If a deal has a short trading history, a lease that ends next year, a partly-completed asset, a messy title, or a borrower structure that doesn't fit the policy grid, the answer is no - regardless of how sound the security is. Private credit says yes and prices for it.
The loan is short and it's work. A private facility is typically 6–24 months with a defined exit. It's underwritten, documented, monitored and repaid inside the time a bank loan is still in its first year. All the fixed cost of doing a loan gets recovered over months, not decades.
Flexibility isn't free. Interest-only, capitalised interest, no serviceability test, and fast settlement. Every one of those is a concession the bank won't make, and each one shifts risk to the lender.
Now the part people miss: total interest cost
Rate per annum tells you the speed. Total interest tells you the distance travelled. Here's the same $2,000,000 borrowed two ways.
Option A: Vía Private, 12-month facility
| Option A — Vía Private | 12-month facility |
|---|---|
| Loan amount | $2,000,000 |
| Rate | 11.95% p.a., interest only |
| Term | 12 months |
| Interest over the term | $239,000 |
| Establishment fee (2%) | $40,000 |
| Total cost of capital | $279,000 |
Twelve months later, the facility is repaid and gone. That's the whole cost. Nothing keeps accruing.
Option B: Bank loan, 30-year P&I
| Option B — Bank loan | 30-year P&I |
|---|---|
| Loan amount | $2,000,000 |
| Rate | 6.50% p.a., principal and interest |
| Term | 30 years |
| Monthly repayment | $12,641 |
| Total repaid over 30 years | $4,550,890 |
| Total interest paid | $2,550,890 |
The bank rate is almost half. The total interest bill is more than nine times larger - $2.55 million to borrow $2 million. You pay back well over twice what you borrowed, and it never feels like a big number because it arrives $12,641 at a time.
What does the first year actually cost?
Over the first twelve months, the bank loan costs about $129,342 in interest, and $22,355 comes off the principal. So on a like-for-like year, private credit costs roughly $110,000 more, or $150,000 including the establishment fee.
If those twelve months are the difference between securing a site or losing it, settling a purchase or forfeiting a deposit, completing a project or stalling it, or refinancing on your terms rather than the bank's timetable - the answer is usually straightforward. Most of the deals we fund make or protect far more than $150,000. It's a business expense and a business decision.
The point isn't that one is better
A 30-year bank loan at 6.50% is excellent value for what it is: patient, long-dated capital for an asset you intend to hold. Nobody should use private credit for that, and we'd tell you so.
Private credit is a different instrument entirely. It's short-dated capital that solves a timing problem. It's meant to be paid back in full - by a sale, a refinance to a bank, a completed project, a resolved issue. The deal doesn't exist if there isn't a clear exit strategy.
The mistake isn't choosing one over the other. It's comparing them on rate alone, as though a 12-month facility and a 30-year mortgage are the same product with different numbers on the front.
They aren't. One is priced for a year. The other compounds for three decades - and because it feels normal, nobody adds it up.
Talk to Vía Private
If you have a deal with a clear exit and a timeline the banks cannot meet, we will give you a straight answer on structure, pricing and timing, usually within a few hours. Brokers welcome.
Illustrative figures only, and not an offer of credit. Actual rates, fees and terms depend on the security, structure, LVR and exit strategy of the individual transaction. Vía Private is an Australian non-bank private credit lender providing property-secured commercial loans to companies and trusts for business and investment purposes across NSW, VIC, QLD and the ACT. All lending is subject to credit approval and valuation. General information only, not financial or credit advice.
Frequently asked questions
Why is private credit more expensive than a bank loan?
The rate reflects what the loan actually is. Private lenders fund from investors who expect a return well above a term deposit, rather than from cheap retail deposits, so the cost of funds is higher before any margin. On top of that you are paying for speed, for risk the bank declines rather than prices, for a short facility whose fixed costs are recovered over months instead of decades, and for flexibility like interest-only, capitalised interest and no serviceability test.
Is a private loan actually cheaper than a bank loan overall?
On total interest, often yes. A $2,000,000 facility at 11.95% interest only for 12 months costs $239,000 in interest. The same $2,000,000 on a 30-year principal and interest bank loan at 6.50% costs $2,550,890 in interest over its life — more than nine times as much. The bank rate is lower; the bank loan runs for thirty years.
What does private credit cost compared to a bank in the first year?
On a like-for-like twelve months, the bank loan in our example costs about $129,342 in interest and the private facility costs $239,000, so private credit costs roughly $110,000 more, or about $150,000 once a 2% establishment fee is included. The question is whether those twelve months are worth more than $150,000 to the deal.
When should I use a bank instead of private credit?
When you intend to hold the asset long term and you have the time to wait. A 30-year bank loan at 6.50% is excellent value for patient, long-dated capital, and nobody should use private credit for that. Private credit is short-dated capital that solves a timing problem, and it only works where there is a clear exit.
Why does a private facility need an exit strategy?
Because it is designed to be repaid in full within 6 to 24 months, by a sale, a refinance to a bank, a completed project or a resolved issue. The deal does not exist if there is no clear exit.