What to do if you can't afford a rental bond

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Coming up with a bond for a home to rent is a stretch for plenty of renters.

The bond is typically four weeks rent, depending on state government guidelines. And because the bond is a security deposit to a new landlord in case there is any damage to the property, it is locked away until you move out. Often people are caught out because they have to come up with a new bond before they have their old bond paid out.

So what happens if you don't have the money for the rental bond?

what to do if you cant afford a rental bond

One solution is to take a loan from a number of private finance companies but before you borrow from them, check if you qualify for the interest-free bond loans from your state government.

While the private loan companies charge interest from day one, some offer interest-free periods of a few weeks. They can work if you pay back the loan within the interest-free period. But if you miss the interest-free period or only pay back part of the loan, you could be paying interest rates and fees that could equal 24% to 36%, depending on your repayment schedule, according to the NSW Tenants Union.

The best bond loan is from state governments. If you qualify, they offer interest-free periods for much longer to help people on lower incomes to pay their bond. This takes the pressure off to pay it back quickly.

State government loans typically have no fees either. But lending companies charge an establishment fee, a monthly fee and if you miss a repayment, a missed payment fee.

But the catch for a state government loan is, you have to meet the criteria, which varies widely from state to state. It can be provided instantly online if you have the relevant documents.

How do you apply?

Some states require you to have been approved for a private rental property. Others allow you to apply if you haven't found a home yet and keep your application valid for 14 weeks to up to six months.

To qualify you need a low amount in your bank account. In Queensland, the amount is $2500. In NSW, you must have less than $5000 in cash. In the ACT you need to hold less than $10,000 in cash or savings for single applicants or $15,000 for joint applicants. In Western Australia, the loan is $2,500 for singles without dependants, $5000 for singles with dependants and couples.

You have to provide proof of savings and financial assets.

As well you have to meet the income threshold. Proof of income includes documents such as a PAYG payment summary for the previous financial year or a payslip from the last month. Interest and dividend income need to be included as well as payments from Services Australia such as family tax benefit payments.

You need to upload your supporting documents online such as proof of identity and finances. Approvals typically can be checked instantly online.

Some states check that the rent is a certain percentage of your income to make sure you aren't overcommitted. In Queensland and Western Australia, you can't pay more than 60% of your total gross weekly income on rent. In South Australia, rent can't be more than 50% of your income.

How much can you borrow?

Some states such as Victoria provides amounts based on the size of the rented property. For example in Victoria, you can borrow $1650 for a bedsit or one-bedroom apartment; $2050 for two bedrooms, $2,200 for three bedrooms and $2,000 for four or more bedrooms.

In South Australia the government lends on properties where the total rent is no more than $450 per week.

Most loan companies and the state authorities pay the bond directly to your agent or the relevant bond authority.

How do you pay back the bond?

Check the repayment schedule and time frame.

In the ACT you pay back small instalments either weekly, fortnightly or monthly over an agreed period of up to two years.

Get help paying the bond

Source: moneysmart.gov.au

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.

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