Deposit Bonds vs Bridging Loans: Which Do You Need?

By Jason Given · 2026-08-14 · 7 min read

Two different tools for two different problems

Deposit bonds and bridging loans are frequently mentioned in the same conversation, but they are not interchangeable. They solve different timing problems - and understanding the distinction will save you money and stress.

A deposit bond replaces the cash deposit at exchange. It is a guarantee from a financial institution that stands in for the 5-10% deposit you would normally pay on the day you sign the contract. It does not fund the purchase - it simply removes the need to have cash available on exchange day.

A bridging loan funds the entire purchase of your new property before your current property sells. It is full financing - a real loan with real interest charges - that lets you hold two properties simultaneously during the transition period.

They are not alternatives to each other. A deposit bond solves the "I do not have cash for the deposit right now" problem. A bridging loan solves the "I need to buy before I sell" problem. In some situations, you need both.

How deposit bonds work

A deposit bond is a guarantee - not a loan - issued by a financial institution (typically an insurance company or specialist provider). It replaces the need for a cash deposit on exchange day, which is usually 5-10% of the purchase price.

Here is how it works in practice:

• ✓You pay a one-off premium of 1-2% of the deposit amount. On a $100,000 deposit (10% of a $1M property), that is roughly $1,000 to $2,000.
• ✓The bond provider issues a guarantee to the vendor, promising the deposit will be paid at settlement.
• ✓The bond is valid for a set period - typically 3 to 6 months - covering the gap between exchange and settlement.
• ✓You still need full financing (your home loan or bridging loan) arranged for settlement day. The bond only covers the deposit - not the balance.

Deposit bonds are useful when your cash is tied up in your existing property or investments and you cannot access it before exchange day. They are particularly common at auctions, where some providers offer same-day or next-day bonds.

How bridging loans work

A bridging loan is a full loan facility that funds the purchase of your new property while you still own your current one. You hold both properties simultaneously during the bridging period, with the expectation that your existing property will sell and repay the bridge.

Here is how it works in practice:

• ✓The lender assesses the combined value of both properties and your borrowing capacity.
• ✓Interest is charged on peak debt - both mortgages combined. If your new purchase is $1M and your existing mortgage is $400,000, peak debt is $1.4M.
• ✓When your existing property sells, the bridge is repaid and you are left with just the new home loan.
• ✓Typical bridging term is 6-12 months. The cost is interest on peak debt for the duration - which can be $30,000 to $60,000 or more depending on property values and how long the bridge lasts.

Cost comparison

The cost difference between these two products is dramatic - but that is because they do fundamentally different things.

Deposit bonds are dramatically cheaper - but they only solve the deposit problem, not the settlement financing. If you need to buy before you sell, a deposit bond alone will not get you there.

When to use each

When you need both

Here is the scenario that catches people off guard: you are buying at auction before selling your current home, and you do not have cash available for the deposit on auction day.

In this case, you need two things: a deposit bond to cover the deposit when you sign the contract at auction, and a bridging loan to fund the full purchase at settlement (because your current property has not yet sold).

This is more common than people realise, particularly in competitive Adelaide suburbs where auctions are the norm and properties move quickly. If you are upgrading from one home to another in suburbs like Unley, Norwood, or Mitcham, and you find the right property before yours is listed, this dual approach may be exactly what you need.

Lendology coordinates both - the deposit bond provider and the bridging lender - so the timing lines up and nothing falls through the gap between exchange and settlement.