Vendor finance is quietly shaping the way Australians buy and sell homes, businesses, and even vehicles. With banks tightening lending criteria and interest rates remaining stubbornly high in 2025, buyers and sellers are looking for creative solutions. Vendor finance—where the seller provides part or all of the purchase funding—has re-emerged as a flexible alternative. But is it a win-win, or a risky workaround?
What is Vendor Finance and Why Is It Booming?
Vendor finance (sometimes called seller finance) is an arrangement where the seller effectively becomes the lender, allowing the buyer to pay for the asset in instalments. This method is most common in property deals but is also used for business sales, vehicles, and equipment.
In a typical scenario, the buyer pays an upfront deposit and then makes regular payments (often with interest) directly to the seller. Once the agreed amount is paid off, the buyer takes full ownership. Sometimes, the buyer moves in or takes over the asset straight away; other times, full transfer happens at the end.
- Residential property: Vendor finance is often used by buyers who can’t qualify for a traditional mortgage, or when sellers want to attract a wider pool of potential buyers.
- Business sales: Particularly common in small business transfers, where the outgoing owner helps the new owner get started.
- Equipment and vehicles: Vendors offer payment plans to close deals quickly or help buyers manage cash flow.
According to industry data, vendor finance deals increased by an estimated 18% year-on-year in 2024, with regional property and small business sectors seeing the sharpest rise. The reasons are clear: with APRA’s ongoing lending restrictions and the RBA’s cash rate still above 4.1% in early 2025, both buyers and sellers are seeking flexibility outside the big banks.
How Vendor Finance Works: The Nuts and Bolts
While the details vary, most vendor finance agreements in Australia follow a similar structure:
- Negotiation: The buyer and seller agree on the price, deposit (often 5–20%), repayment schedule, interest rate (if any), and term (usually 1–5 years).
- Contract: A formal contract is drawn up—often with legal and financial advice on both sides. For property, this might be a ‘terms contract’ or ‘rent-to-own’ agreement.
- Payments: The buyer pays regular instalments to the seller. Some agreements allow the buyer to move in or take over the business immediately; others defer full transfer until the final payment.
- Title Transfer: Once all payments are made, ownership is fully transferred to the buyer.
Interest rates in vendor finance deals are usually higher than standard bank loans—reflecting the extra risk the seller takes. In 2025, typical vendor finance rates range from 6% to 10% per annum, depending on the asset and buyer profile. Some deals are structured as ‘principal and interest’, while others may be interest-only with a balloon payment at the end.
Example: In regional NSW, a couple unable to meet a major bank’s lending criteria for a $650,000 home agreed to a vendor finance deal with a 10% deposit, 7.5% interest, and a 3-year term. After 36 months of on-time payments, they refinanced with a mainstream lender and took full ownership.
Pros and Cons for Buyers and Sellers in 2025
For Buyers
- Access: Bypass strict bank lending criteria or credit history issues.
- Speed: Transactions can be quicker without lengthy bank approvals.
- Flexibility: Payment terms can be negotiated to suit both parties.
- Potential Risks: Higher interest rates, risk of losing deposit if unable to complete payments, and fewer consumer protections compared to regulated mortgages.
For Sellers
- Wider Market: Attract buyers who may otherwise be excluded by mainstream finance.
- Faster Sale: Particularly useful in slow or regional markets.
- Income Stream: Earn interest and staggered payments.
- Risks: Potential for buyer default, ongoing management, and legal complexity. Sellers may not receive the full sale price upfront.
In 2025, the Australian Securities & Investments Commission (ASIC) has flagged increased scrutiny of vendor finance arrangements, especially those that blur the line between private lending and regulated credit. Sellers need to ensure contracts are watertight and compliant, while buyers must understand their obligations and the consequences of default.
2025 Policy Changes and Market Trends
Recent policy shifts are influencing the vendor finance landscape:
- ASIC Guidance: New guidelines issued in late 2024 clarify that most vendor finance deals in property and business transfers remain outside the National Consumer Credit Protection Act, but misrepresenting deals as ‘rent-to-own’ can trigger regulatory action.
- APRA Lending Standards: Tighter stress testing and serviceability rules have pushed more buyers toward alternative financing—including vendor finance.
- Tax Implications: The ATO’s 2025 review of private lending arrangements highlights the need for sellers to account for interest income and capital gains correctly.
- Regional Growth: As traditional banks scale back regional lending, vendor finance is filling the gap—especially for farms, motels, and local businesses.
With these changes, both buyers and sellers are encouraged to seek professional legal and tax advice before entering into vendor finance deals. Well-structured contracts protect both parties and help avoid costly disputes down the track.
Is Vendor Finance Right for You?
Vendor finance is not a silver bullet, but in a high-rate, high-barrier lending environment, it offers a practical solution for motivated buyers and sellers. Whether you’re seeking to unlock a sale or secure a property when banks say no, understanding the risks, rewards, and regulatory landscape is crucial in 2025. With careful planning and clear agreements, vendor finance can be a win-win on both sides of the deal.