How rental bond loans work

By   |   Updated 13th October 2021

How rental bond loans work

Before you can move into your rental property, you will be asked to pay a security deposit to your landlord. This is called a rental bond. The bond amount is usually the equivalent of four to six weeks of rent depending on location.

A rental bond acts as a security under your residential tenancy agreement. Your landlord may deduct amounts from it to cover the cost of repairing damage to the property that goes beyond normal wear and tear as well as any rent arrears you may owe. The bond will be paid back when you move out.

What if you don’t have enough money to cover the bond? Rental bond loans are one option to consider. This is how they work.

What is a rental bond loan?

A rental bond loan or bond loan is an unsecured personal loan to pay the bond on rental accommodation. You can also use bond loan funds for moving and relocation costs and other upfront payments such as to professional cleaners and removalists if necessary.

You can get rental bond loans in the form of personal loans and, if you meet the criteria, government assistance.

How does it work?

You can apply for a personal bond loan online. Some lenders have loan calculators to help you budget how much your repayments will be.

If you apply and are offered a loan, read the small print to understand what commitments you are making and the total cost of credit before signing the loan agreement. This may include your interest and other costs such as establishment fees, and penalties for failed payments.

Terms of the loan

The rate of interest will depend on the lender as well as the loan amount. People with good credit are typically offered lower interest rates.

Pre-approvals

Lenders understand that finding a property, signing the lease, and organising to move takes time. Most lenders can pre-approve your bond loan ahead of time and wait for your go ahead before the loan is given.

Loan repayments

The loan period may vary with the lender. Some offer up to 12 months, but others may have longer loan periods. If you are moving and expect to receive the bond from your current rental, you can use it to repay the bond loan early and save on the interest.

Keep track of when bond loan repayments fall due and make sure you have money in the bank account to cover that amount. Lenders usually arrange for your repayment installments to be directly debited from your bank account on specified dates.

Some lenders allow weekly, fortnightly, or monthly installments. These can be aligned with when your pay comes in.

If you are unable to make the repayment in any period, contact the lender in advance. Failure to do so makes you liable for penalties in your loan agreement as well as dishonour fees to the bank.

Is a rental bond loan a payday loan?

No, they are not.

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

Unlike a payday loan, rental bond loans are a type of personal loan, which are typically repaid over a period of 12 or more months. Loan amounts vary depending on the lender and the amount you need to borrow to cover the bond.

Will it affect my credit score?

Personal loans, including bond loans, will appear on your credit report. What damages your credit is the irresponsible use of personal loans, missed payments, and defaults. If you avoid those and repay on time, a loan may actually indicate your credit worthiness and build your credit score.

How long does it take to get?

Once you have found a suitable property, you will probably want to lock in the agreement before someone else does. Lenders offering bond loans understand this too and are used to processing loans quickly.

Depending on the lender, you can get loan funds deposited into your bank on the same day or within 24 to 48 hours of being approved.

How much can you borrow?

Depending on your need, a rental bond loan can be as small as $500 or as much as $50,000. The range can vary from lender to lender.

Can you get a rental bond loan with bad credit?

Lenders are required to check your credit score before approving loan applications. Your lender will most likely check your credit score. They will also take into consideration your current circumstances. Even so, you may be able to get a rental bond loan even with bad credit. Jacaranda Finance and Swoosh both work with people who have bad credit. Find out more about bad credit loans here.

Will the landlord know?

It is standard practice for Australian landlords to run a credit check on their prospective tenants. These checks are meant to ensure that you have a good financial track record of paying your dues without defaults.

A rental bond loan application, like other loans, will appear on your credit report. However, given the lag in reporting, the loan may not appear on your report until after the landlord views it.

Who can apply for a rental bond loan?

The typical minimum requirements for a rental bond loan:

  • Be over 18 years of age
  • Be a permanent Australian resident or hold a valid visa
  • Able to show you have been employed for the past three months with proof of income, e.g. payslips
  • Own a registered vehicle, which can also be a trailer, caravan or motorbike
  • Active email address and mobile phone number
  • Set up online banking

What documents are required?

  • Proof that you are 18 years of age, are a permanent Australian resident or a valid visa holder
  • Proof of employment and bank statements the last 90 days
  • Proof of vehicle ownership

Pros and cons

Pros

  • Covers bond amount and upfront costs of moving and relocation.
  • Payment periods are flexible to suit your needs.
  • Can be obtained quickly and easily online.
  • Unsecured, so no need for equity or collateral.
  • Repayable in fortnightly or monthly instalments.
  • Can be paid off early to save on interest.
  • Lower interest rates than credit card advances.

Cons

  • Costlier than interest-free and fee-free government bond loan assistance.
  • Higher interest rates than on secured loans.
  • Late payment and default can incur costly penalties and extra interest.
  • Defaults and delays can damage your credit score.

Alternatives

The alternatives to rental bond loans include:

  • Use a credit card to pay via a payment platform. Rental Rewards can help with online bond lodgement and coordination with landlords and agents at the beginning and end of a tenancy arrangement. FrequentPay will help you pay your rental bond with a credit card for a small fee even when your landlord does not accept credit cards. And you can earn loyalty points for this payment also, as well as your ongoing rental payments.
  • Family. Your parents or siblings may be willing and able to help you cover the rental bond, most likely without interest.
  • Government support. You can get support from all the Australian states and territories (ACT, QLD, NSW, NT, TAS, VIC, and WA) for paying rental bonds — and sometimes rent too — if you are on a low income. Rental bond loans from the government have no interest or fees. The terms, conditions and eligibility may vary depending on states and territories.