A rental bond is a security deposit you'll need to pay when you commit to a new rental property.
This bond needs to be paid before you move in and is kept in a special account for the duration of your time living there.
Often, you won't receive your previous rental bond back before you need to pay the new one, so a rental bond loan can help you if you don't have the extra cash to spare.
What is a rental bond?
A rental bond acts as a security deposit for the property you're renting. This deposit is held for the duration you rent the property. It will be paid back to you when you move out, granted there is no damage to the property.
If there is damage, all or part of the deposit will be used to pay for the repairs. Rental bonds vary, but they are usually 4 weeks of rent.
What is a rental bond loan?
Although you will receive your deposit back from the old rental, this often isn't until you've moved out and the property has been inspected. A rental bond loan allows you to borrow the money you need for your new rental and then repay once you have your old deposit back.
But there are other situations in which you might need a rental bond loan.
If there are damages to the property your previous rental bond may be less than the full amount you thought you would receive. There may also be disputes, which will take time to settle.
You may also require rental bond support if you're escaping domestic violence or homelessness or you're on a particularly low income. There are some state-based loans available for these situations.
What rental bond loans are available?
There are a couple of loan options available but some loans are riskier than others so you should always exercise caution.
Rental bond loans. Rental bond loans are a specific type of personal loan designed to cover your rental bond. They may also allow you to borrow for any other costs associated with your move. The funds are typically deposited very quickly if you are approved. If you repay the loan with a fast turn-around, like if you receive your previous bond and can repay the new one in full, you may benefit from no interest or additional charges.
Personal loans. A same-day personal loans may also be able to help if you're in need of quick funding. Interest rates on personal loans tend to be lower than rates for credit cards or short term loans. Their loan terms are generally longer though, starting from 1 year. This means you're repaying for longer and will end up paying more in interest or other charges. The lending criteria is usually strict and you will need to meet the credit and income requirements.
Short term loans. These are also known as payday loans. These loans are usually between $100 and $2,000, although you can get loans for $5,000 and $10,000. The loan terms are short, from 16 days to 1 year at most for $2,000 loans. The lending criteria is comparatively flexible. You can find loans which accept bad credit applicants and Centrelink recipients. However, these loans are expensive and come with high fees and charges.
Government assistance loans. Some state governments offer rental bond loans for applicants with lower income. These loans are offered without interest and are designed to help people access private housing. We've outlined state-specific government loans below.
Government assistance schemes
Queensland. The Queensland government offers bond loans to applicants who meet a specific set of criteria. You need to be an Australian citizen, permanent resident or have a temporary protection or bridging visa. You must also not own residential property and have less than $5,500 in cash or savings between all the applicants. There are also income requirements and conditions around your circumstances.
New South Wales. You can apply for the Rentstart Bond Loan if you meet the eligibility criteria. This includes being eligible for social housing, having less than $5,000 in cash assets and meeting the income limits.
Victoria. The RentAssist scheme by the Victorian government requires that your share of the rent is less than 55% of your gross weekly income. You must be an Australian resident, must not own or partly own any residential property and must meet the income and asset limits.
Tasmania. While the Tasmanian government doesn't have a scheme in place, rental bond assistance is available from AnglicareTas.
Northern Territory. If you're on a low income you can apply for bond assistance from the Northern Territory government. You need to be an Australian citizen or permanent resident, or hold a special category or temporary protection visa. You must also have been a resident of the NT for the prior 3 months. Other age, income and asset tests apply. The loan is an interest-free loan to be paid back within 18 months. The rent you'll pay must not be more than 53% of your income.
Western Australia. The WA Housing Authority provides bond assistance and 2 weeks' rent in advance as an interest-free loan to eligible applicants. You must meet income limits and rent must not be more than 60% of the applicants's income.
Australian Capital Territory. Rental bond assistance is available from the ACT government if you meet the criteria. You must be at least 16 years old, earn less than the relevant income threshold and have less than $10,000 in cash or savings, or $15,000 for joint applicants.
South Australia. If you need help paying your bond in South Australia, the SA government offers assistance. The total rent on the property cannot be more than $600 a week. The share of rent must not be more than 50% of your income. You must meet other criteria such as income limits.
What to be aware of when taking out a rental bond loan
Repayment. As with any loan, you need to be sure you can repay it. Hopefully you can repay in full as soon as your previous bond comes in, but if you need to repay over time work out how much your repayments are.
Long loan terms. If you know you'll be able to repay quickly, make sure you have that option. Some personal loans have minimum repayment terms and this means you'll end up paying much more over time than if you can repay quickly.
Short loan terms. Shorter loan terms might seem ideal, but if you're unsure you'll be able to repay in that time you could incur default fees. These can be up to 200% of what you borrowed.
High fees and charges. Short term loans of $2,000 or less don't include interest. Rather, they have a hefty fee to cover the cost of borrowing. There are also fees for late payments. These fees are regulated by ASIC and it's illegal for lenders to charge more. You should ensure you can repay the loan with ease before applying.
Disreputable lenders. Check the lender's website and make sure it's a reputable company. You should ensure it is registered with ASIC. It should also be easy to contact.
Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan and all the fees and payments. Typically, these are unsecured loans. This means the lender can initiate legal proceedings against you if you do not repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector.
Multiple applications. Every loan application shows up on credit reports. Some short term lenders may not consider your credit history. But several applications within a short period can have a negative impact on your credit score. This can make it harder for you to get a loan in the future.
More debt. Given how expensive these loans are, they could potentially lead to more debt if you can't meet your repayments. Late or non-repayments could result in more fees; this has the potential to spiral out of control.
How can I compare rental bond loans?
Comparing loans will help you find the most cost-effective solution with the best terms.
Look at rates and fees. Take note of all fees and charges and add them to your repayment calculations. Apart from the interest rate, you should also consider comparison rates. The comparison rate includes interest and other fees like establishment and ongoing fees and so gives you a more accurate idea of cost. Make sure the loan you're applying for is affordable and can sit comfortably in your budget. If it doesn't, you might want to consider a cheaper alternative.
Loan term. Loan terms are how long you have to repay the loan. Longer loan terms mean lower monthly repayments. But it will increase the amount of interest you end up paying. You should only apply for a loan if you know you can repay it within the agreed loan term.
Loan amount. All loans come with minimum and maximum loan amounts. You need to ensure the loan you're applying for covers how much you need. Don't apply for too much and don't apply for too little.
Repayments. Your repayments will be structured around the income you receive. This can be weekly, fortnightly or monthly. Some lenders will allow you to repay the loan early. This can help you save on fees and charges.
Turnaround. If you need the funds fast, you should consider how long lenders take to deposit the money in your account. Some can issue funds within 30 minutes or a few hours, while others can take longer.
How do I apply for a rental bond loan?
Once you've compared your loan options and found the right solution for you, you should be able to apply online.
If you're applying for state government support you may be able to apply by visiting a service centre.
You will need to provide evidence that you meet the eligibility criteria. This means supplying documentation like:
Income evidence, like pay slips
An acceptance letter for the rental property
Evidence of the total value of your assets, like bank statements
Identification and proof of residency, like a passport or visa
Employment verification, like a letter from your employer or contract of employment
Frequently asked questions about rental bond loans
Depending on your financial situation you may be able to get rental bond support from your state government or other agency.
If you're not eligible for that and you really need help with your bond there are personal loans that will lend to you with bad credit. Watch out for high interest rates and fees though.
Specific loans for rental bonds will often have same day or next day approval times. Short-term loans or payday loans also have very fast approval times.
Some personal loans may take longer, but it depends on the provider and loan you've applied for. You should make sure you can still pay the bond in the required time if you opt for a personal loan with a longer turnaround time.
The interest rates for a rental bond loan depend on the type of loan you choose and how much you need to borrow.
Loans of less than $2,000 fall under ASIC rules which means they don't include interest but they do include large fees to make up for it.
If you're taking out a standard personal loan interest rates are personalised based on your credit score and could be anywhere from 5% to 30%.
Some rental bond loans are interest free if you repay within a certain time period. For example, RentBond is interest and fee free if you repay within 21 days. After that though, the interest rates, establishment fees and monthly fees all depend on your loan size. Interest rates can range up to 29.90% (comparison rate 41.64%).
Short-term loans or payday loans will typically have very high interest rates of up to 50% if you're borrowing above $2,000.
Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines.
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