Options renters should be wary of when paying a bond

It’s no secret, paying rent has become increasingly costly in the past year, but there is another cost often overlooked.

It’s no secret, paying rent has become increasingly costly in the past year. But what is often overlooked is that, along with the rising cost of rents in capital cities, comes rising rental bonds.

A bond is a payment that is made upfront – usually around four weeks worth of rent – to a landlord who then lodges the payment with the relevant authority in their state as a safeguard against non-payment of rent or damages.

That bond payment can translate into a few thousand dollars on top of moving costs. For example, in Sydney where the average house rent is $650 a week, that’s $2600 and in Melbourne where the average house rent is $480 a week, that’s $1920.

Along with the rising cost of rents in capital cities, comes rising rental bonds – which could translate into a few thousand dollars on top of moving costs.

Leo Patterson Ross, CEO of the NSW Tenants Union, says renters need to beware of products that regularly come on to the market to help them deal with the cost of an upfront bond.

Some products may offer to pay your bond for a small monthly membership, others work in a similar way to insurance, some act like a payday, or a short-term loan, and some are like AfterPay where you pay your bond in instalments.

A payday loan for $2000, for example, can end up costing you $3360 over the course of a year thanks to hefty fees, according to Moneysmart.

“A few different organisations have tried to address the issue of paying a bond,” Patterson Ross says. “The reason they exist is that bonds are expensive and often people are paying double bonds when they are moving house.

NSW Tenants Union chief executive Leo Patterson Ross.

“The bond is a form of insurance for the landlord but there’s not a lot of benefit to the tenant, it’s a relic of an older era but is now embedded in our system. We would support reducing the bond to one to two weeks’ rent.”

A double bond is where you have money tied up in a current bond that has not yet been released by the landlord and you are applying for a new property where, if successful, you have to pay a new upfront bond. It can leave you out of pocket for close to $5000 for a period of time.

Patterson Ross says people should read the fine print of whatever agreement they are entering into to help them pay their bond, in particular fees and interest rates that may be applied.

HELP PAYING BOND

If you need help paying your rent, there are a few safe options available to you, says Patterson Ross. You can ask your landlord to let you pay the bond off in instalments, or you can apply for a government bond loan. These are managed by different bodies in different states but they offer you an interest-free loan to pay your bond without hefty fees. The only catch is that you have to be eligible for one of these; you have to earn under a certain income and have under a certain amount of money in savings and assets.