How rent arrears loans work

By   |   Updated 16th July 2021

Woman with dog

Even those who usually pay on time can fall behind on their rent when times get tough. If something unexpected happens, you may need some cash to avoid going into arrears on your rent.

Rent arrears are considered priority debt. If you fail to pay rent on the due date, by next day you are already one day in arrears. And it adds up from there. As the tenant, you are required to pay rent on time, and make up for any arrears if you fall behind. If you do not, you are violating your rental agreement and face the risk of being evicted.

If you have gone into rent arrears or stand the risk of going into arrears shortly, get in touch with your landlord or the letting agency and tell them how you plan to get caught up.

A rent arrears loan can help if you need to deal with arrears, but don’t have the funds in your account. This is how they work.

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What is a rent arrears loan?

Rent arrear loans are a type of personal loan that need to be repaid, typically over a period of 12 to 24 months.

Depending on the amount of rent owed and the lender, a rent loan can be as small as a few hundred dollars or as much as $10,000.

Who is eligible for rent arrears loans?

The minimum requirements for a rent arrears loan are typically as follows.

  • Be over the age of 18.
  • Have proof that you have been employed for at least three months. A lender may call your employer to verify employment status.
  • Some lenders may want proof of a regular income in the last three months (90 days) being deposited into your own bank account.
  • Email address and phone number.
  • Internet banking already set up.

Lenders will consider Centrelink benefit recipients as eligible for rent loans. Some may require you to own a vehicle that is registered under your own name.

How do rent arrear loans work?

You can apply for a rent arrears loan online.

The first step is to complete and submit an application, online or offline, and provide whatever documents are necessary (see below).

If you are approved, you’ll have to review and sign a loan agreement. Make sure to read the small print and understand what you are committing to, such as fees for late payment.

Once the funds have been deposited into your bank account, then it is your responsibility to pay up your arrears.

Loan repayments

Make sure to know when repayments are scheduled and have money in your bank account to cover that amount. Lenders will typically arrange for your repayment installments to be directly debited from your bank account, on agreed dates.

You may be able to make repayments weekly, fortnightly, or on a monthly basis to align with when you are paid.

If you are unable to make a repayment, it’s in your best interest to inform the lender ahead of time.

Are rent loans considered a payday loan?

Payday loans are usually for small amounts taken for a very short time period, typically a month or less.

Rent arrears loans are a type of personal loan, repaid over a longer period, such as a year or two.

Will it affect my credit score?

Rent, utility, and phone bills are not typically noted in your credit file. Not all landlords report to credit reporting bureaus, but if they do and you fall behind, then it can seriously affect your credit score.

When a lender processes your application, they will pull your credit report, which will appear on your credit report. This has the effect of temporarily reducing your credit score. However, repaying the loan on time will also appear on your credit report and may help improve your score.

How long does it take to get a rent loan?

Some lenders may be able to transfer funds within a day, provided you meet their eligibility conditions. Others may take 24 hours to 48 hours before the funds are deposited into your bank account.

How much can you borrow?

Depending on your need, a rent loan can be as small as a few hundred dollars or as much as $10,000. The range can vary from lender to lender.

Can you get a loan with bad credit?

Lenders are required to check your credit score when you make a personal loan application. Since rent arrear loans are a type of personal loan, they will most likely check your credit score when processing an application. However, even those with bad credit may be able to get a rent loan.

Usually, those with good credit will get better terms and lower interest rates than people with a poor credit score. Find out how it works here.

What documents and info are required?

When applying for a rent arrears loan, you will have to give the following information and documents to your lender:

  • Personal details including name, address, and other basic info.
  • Employment details, including employer and contact details.
  • Details of existing financial commitments you have made.
  • Your online banking information.
  • An active email address and mobile number.
  • The reason you are applying for the loan.
  • Your MyGov details if you receive Centrelink payments.

Pros and cons

Pros

  • Rent arrear loans are easy to arrange and a source of quick cash.
  • They are not secured, so you don’t need to have equity / collateral.
  • Lender conditions are typically easier to meet.
  • Amounts are flexible but vary between lenders.
  • Lower interest than credit card cash advances.

Cons

  • Interest rates can be higher than other long term loans.
  • There may be steep penalties for delayed payments and failure to pay.
  • Can damage your credit score if you are late in making repayments by over 60 days.

Alternatives

  • You can use your credit card to pay via a service like Rental Rewards or RentPay, even if your landlord or real estate agent doesn’t take credit cards. Find out how you can also earn rewards points in the process.
  • Household Relief Loans are interest free loans to pay for rent and utilities if you have been financially affected by COVID-19. You may be eligible if you or your partner’s income has been affected due to reduced hours, job loss, lockdown restrictions, sickness or while awaiting test results and contact tracing.
  • Housing services in ACT, QLD, NSW, NT, TAS, VIC, and WA offer financial assistance for those on a low income, or those on pensions or benefits where rent is overdue.
  • Some people, if they are lucky, can get a loan from their parents to meet their rent.

The most prudent thing is to avoid getting into rent arrears if at all possible since it can lead to eviction, damage your credit score, and create a feeling of instability in your life.