A bank guarantee is a pledge by a bank to a vendor guaranteeing payment of the deposit on the settlement date. The main differences between a deposit bond and a bank guarantee is that the deposit bond is unsecured and the bank guarantee is secured.

It is generally less expensive than a deposit bond, but because it is a secured facility, it has exactly the same time delays and establishment costs as borrowing the full amount of money. Bank guarantee fees are also applicable for a minimum of six months and paid in advance.

Time delays in establishing a bank guarantee and the cost of paying the guarantee fee for a minimum of six months make this an unattractive option to fund a deposit on a 30–90 day settlement. A bank guarantee is more likely to be used for longer settlements of six months or more, or for commercial purchases.

 

Activity

 

Name the four options for paying a deposit when purchasing a property and explain each option in your own words.