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Bank Guarantee vs. Security Deposit: What’s the Difference?

When buying a house, you often encounter the terms "bank guarantee" and "security deposit." Both serve as assurances for the seller, but there are key differences. In this article, we explain what a bank guarantee and a security deposit are and how they differ.

What Is a Security Deposit?

A security deposit is a down payment, usually 10% of the purchase price of the property. You transfer this amount from your own funds to the notary’s account. It serves as a guarantee for the seller that you will fulfill the purchase agreement. When the deed is executed, the deposit is deducted from the total purchase price. If the purchase does not go through and you cannot rely on contingency clauses, the seller can claim this amount.

What Is a Bank Guarantee?

A bank guarantee is a written statement from your bank in which they guarantee to pay the security deposit to the seller if you fail to meet your obligations. Instead of transferring the deposit yourself, you request your bank to issue a bank guarantee. Banks typically charge a fee for this service, usually around 1% of the guaranteed amount. Keep in mind that if the bank has to pay out, the amount will be converted into a loan that you must repay to the bank.

Key Differences

  • Payment: With a security deposit, you pay the amount yourself; with a bank guarantee, the bank provides the guarantee.

  • Costs: A security deposit incurs no extra costs, but you temporarily lose access to those funds. A bank guarantee usually costs 1% of the guaranteed amount.

  • Availability of Own Funds: If you have sufficient savings, a security deposit may be more economical. If not, a bank guarantee is a suitable alternative.

When to Choose Which Option?

  • Security Deposit: Suitable if you have enough savings and want to avoid additional costs.

  • Bank Guarantee: Convenient if you don’t have sufficient funds to cover the deposit yourself.

Conclusion

Both a security deposit and a bank guarantee provide the seller with assurance that the purchase will proceed. Which option is best for you depends on your financial situation and personal preferences. Consult with your real estate agent or financial advisor to determine the most suitable choice for your circumstances.

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Team Komma