Written byA disbursement is money paid out to a third party or on your behalf, such as loan funds released at settlement or costs a solicitor pays for you.
Also known as: disbursements, loan disbursement, payout of funds
Key points
- In finance, disbursement is the moment the lender releases the money, usually straight to the supplier or dealer rather than to you.
- Drawing the money under an approved facility is drawdown; the disbursement is the payment going out to whoever is being paid.
- In conveyancing and legal work, disbursements are third party costs such as searches, certificates and registration fees.
- Large or built to order assets are often funded by progressive stage payments rather than one lump sum.
- Repayments are usually calculated from the disbursement date, so the timing shapes when your first payment falls due.
How a disbursement works
Once the contract is signed and every condition is met, the lender authorises payment. For a vehicle or equipment loan the funds normally go straight to the supplier, not into your account, which is how the lender knows the money bought the asset it took security over.
The disbursement statement sets out each payment: the purchase price to the seller, any payout of an existing loan, fees deducted at the start and the balance, if any, to you. Check it against the contract before you sign the authority.
Disbursements in loans and settlements
At a property settlement, several disbursements happen at once. Funds pay out the seller's existing mortgage, clear rates and water adjustments, cover stamp duty and registration, and send the remainder to the seller. Only then does the transfer register.
Legal and conveyancing disbursements
Lawyers and conveyancers use the word differently. Their disbursements are out of pocket costs paid to someone else on your behalf, such as title searches, council certificates, PPSR searches and government registration charges. They are billed on to you at cost and listed separately from professional fees.
The distinction matters at invoice time. Professional fees are what the firm charges for its own work; disbursements are money it has already handed over to a third party. GST treatment can differ between the two, so ask your accountant how to code them.
Example
A landscaper buys a $95,000 mini excavator. She pays a $10,000 deposit to the dealer, and the lender disburses $85,000 to the dealer on the settlement date, less an application fee taken from the advance. Nothing lands in her bank account, because the money never needed to pass through it. Her first repayment is set one month from that disbursement date, and the machine is delivered the same week.
Not to be confused with
Frequently asked questions
What does disbursement mean?
It means paying money out, usually to a third party or on someone else's behalf. In lending it is the release of loan funds to a supplier or seller. In legal work it is a cost the firm pays for you, such as a search or registration fee, and then bills on.
When are loan funds disbursed?
After the contract is signed and every settlement condition is satisfied, including insurance, invoices and any security registration. For asset finance that is often the same day the asset is collected. Timing varies by lender and by how quickly the supplier's documents come through.
What is the difference between disbursement and drawdown?
Drawdown is the borrower taking money under a facility. Disbursement is the payment itself leaving the lender and reaching whoever is being paid. On a simple equipment loan they happen at the same moment, so the words often get used as if they mean the same thing.
What are disbursements at settlement?
They are the individual payments made from the settlement funds: paying out the seller's existing mortgage, adjusting rates and water, covering stamp duty and registration fees, and sending the balance to the seller. Your settlement statement lists each one.
Are disbursements the same as fees?
No. A fee is what a lender or firm charges for its own work. A disbursement is money it pays to someone else on your behalf and passes through at cost. Both can appear on the same statement, which is why they are usually listed under separate headings.
Related terms
Settlement
Settlement is the final stage of a finance deal, where the lender releases funds, security is registered and you take delivery of the asset.
Read definitionDrawdown
A drawdown is a borrower taking funds under an approved loan facility, in one payment or in stages, once the lender's conditions have been met.
Read definitionPayout
A payout is the total amount needed to close a loan or lease on a given date: the balance owing, accrued interest and any break costs or fees.
Read definitionFees
Fees are the explicit charges a provider applies for a financial product or service, separate from interest and covering access, administration or transactions.
Read definitionStage payment
A stage payment is a pre-agreed instalment of a building contract price, paid when a defined stage of work such as slab or frame is complete.
Read definitionSupplier
A supplier is the party that sells the asset being financed, whether a vehicle dealer, equipment distributor, manufacturer or private seller, and is usually paid by the lender at settlement.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.