At a Glance

Security loans are a unique personal loan type structured specifically to assist with the security deposit required by your landlord. The borrowing of the loan is for the sole purpose of meeting your deposit, meaning the loan amount is typically smaller than a standard personal loan. With a strong credit history, any borrower can increase their chances of getting approved for this type of loan.

In this article, you’ll learn:

What is a security deposit loan?

A security deposit loan is a specialty personal loan that provides a borrower with the exact sum of money needed for their security deposit. These types of personal loans are offered through banks, credit unions, and online lenders, and because personal loans offer flexibility in what you can use them for, this can be a good option if you need funds to secure an apartment or home rental.

With a security deposit loan, you’ll get the money you need in one lump sum and then pay it back over time, with interest. The interest rate you get will depend on factors like your income, existing debts, credit score and history, and others. Once you receive the funds, you can use them to pay your security deposit.

Security deposit loans come in two types: Secured and unsecured (though most are unsecured). Secured means you must use some type of asset as collateral, and if you don’t repay the loan, the lender can seize that collateral. Unsecured loans don’t require collateral to back the loan, though they may have higher interest rates.

The amount you can take out with a security deposit loan also varies widely, from as small as $1,000 up to $100,000. However, it’s best practice to only borrow what you need for the deposit.

Moving loans can also be a good option that can provide the funds you need.

Find and compare the best loan options.

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Credit score required for a security deposit loan

A good to excellent credit score is likely required for a security deposit loan (690+). However, there are some online lenders and credit unions that may provide security deposit loans for borrowers with lower credit, even as low as 599 or below. However, borrowers with lower credit may face higher interest rates, and repayment terms may not be as good as for borrowers with good credit.

Pros and cons of security deposit loans

Using a loan to pay your security deposit is a big decision, which is why all the pluses and minuses should be considered before contacting a lender:

Pros Cons
Quick access to security deposit funds in full. Paying back more than just the security deposit (interest).
Smaller sum of money borrowed than with a standard loan. Can indicate you can’t afford monthly rent payments
Lower interest rate than with a standard loan. Possible fees
Potentially no collateral required. Increased debt burden and risk of default
Immediate access to housing Not accepted by all landlords

Can you use a personal loan to cover a security deposit?

You can use a personal loan to cover a security deposit, but it’s important to know the types of loans available to you. With rental security deposit loans, there are two main types to consider taking on as a borrower:

1. Secured deposit loan

Secured rental security deposit loans require some form of collateral when taking on the sum of the loan. If you cannot repay the loan, the lender may have the legal obligation to take ownership of whatever the borrower pledged as collateral. Secured loans are typically best for those unable to qualify for an unsecured loan due to poorer finances or credit history.

2. Unsecured deposit loan

The second type of security deposit loan is an unsecured loan that doesn’t require any collateral. With this type of loan, a borrower is given the sum of money in good faith with no added security, but they are still completely responsible for all payments in full.

Related: Secured vs Unsecured Personal Loan

Should you take out a personal loan for a security deposit?

If you’re renting or leasing, you’ll likely be required to pay a security deposit. A personal loan can be a way to cover it if you don’t have the cash on hand; however, it may not be the best financial option depending on your circumstances.

If you need to take out a personal loan to cover your deposit, this may indicate you’re not quite ready to move into your own place, or that the property is too expensive for your current financial situation and budget. It may be better to save for a few months until you have the cash to pay the deposit, or find a less expensive apartment that would have a smaller deposit.

However, if you’re in a situation where you can’t wait to save or you don’t have many choices for apartments, a personal loan can help ensure you have the funds you need to secure your new home.

What is the average cost of a security deposit loan?

The average cost of a security deposit loan can vary depending on the lender, the amount borrowed, and the terms of the loan, but it’s primarily determined by the interest rate and any additional fees charged by the lender. Interest rates can vary widely, but they are often higher than traditional loans because security deposit loans are considered riskier for lenders.

That said, because security deposit loans are designed to help renters cover the cost of a security deposit when moving into a new rental property, these loan amounts are typically smaller and therefore will accrue less interest over time.

It’s important to shop around and compare offers from different lenders to find the most competitive rates and terms for a security deposit loan.

Where can you get a security deposit loan?

There are a few main sources to get a loan for security deposit. Each source comes with its own average interest rate and loan terms, so be sure to consider each option to determine which may be best for you when borrowing:

1. Online lenders

As one of the newest forms of lending, online lending has grown rapidly in popularity. Small personal loans are typically offered through online lenders, with sums as small as $500, making online lending a perfect choice for borrowing your security deposit loan. Be aware that online lenders may charge a higher interest rate than expected depending on factors such as income history and credit score.

2. Peer-to-peer lenders

Peer-to-peer lending is a great choice for smaller loan amounts such as a rent deposit loan. Peer-to-peer lending (P2P) essentially cuts out the middleman and allows a person to borrow money directly from another individual without a financial institution in between. Typically, P2P lending occurs using an online verifiable platform.

3. Banks and credit unions

Finally, banks and credit unions are your third option when seeking out a rent deposit loan. These traditional lenders offer competitive loan rates and very fair loan terms that can rival online lenders. Additionally, for bank lending, if you have a history with the bank you are considering borrowing from, you may be offered benefits or better terms. Be aware that borrowing from a credit union may require you to become a member.

Alternatives to taking out a personal loan for a security deposit

Instead of a personal loan, a few things you can consider include:

  • Using your tax refund if you know you’ll get money back at the end of the tax year.
  • Borrow from a friend or family member so that you have the funds and can avoid interest on a loan. This can be an especially appealing option if you’re getting the security deposit back from your current home once you move out, allowing you to repay the debt quickly.
  • Open a high-yield savings account and set money aside over the next few months. The higher interest earnings will help you save more faster.
  • Start a side hustle or work extra hours/shifts. Put those extra dollars aside for the deposit.
  • Find a cheaper apartment or one with a smaller deposit required.

FAQs

Security deposits are typically required by landlords to protect against potential damages or unpaid rent during a tenant’s lease term. They serve as a form of security for landlords, ensuring that they have a financial buffer if the tenant fails to fulfill their obligations. The deposit can cover costs such as repairs, cleaning, or unpaid rent at the end of the lease.

No, an advance payment on rent is distinct from a security deposit and serves a different purpose. While an advance on rent allows you to pay months of your rent ahead of time, a security deposit does not go towards your rent. It’s best to think of a security deposit as a sum of money set aside by the landlord as a form of collateral in case a tenant violates their lease.

A security deposit loan will impact your credit if you fail to make the necessary payments on the loan in time. This can quickly hurt your credit score and leave a lasting stain on your credit history, so making complete payments in accordance with your financial obligation should be a top priority.

Most landlords have a blanket amount that they request from tenants for a security deposit, rather than picking and choosing what they charge per tenant. Due to this, it is unlikely that your credit score will influence the security deposit amount. However, your credit score will certainly impact the decision of whether you are approved for your apartment or home.

No, a rent deposit loan is typically used to pay an advance on rent whereas a security deposit is usually used to pay a security deposit.

Yes, you can use a security loan for apartment deposits. When you rent and move into an apartment or home, the landlord will typically require a security deposit. A security deposit loan is a specialty personal loan that provides a borrower with the exact sum of money needed for their apartment deposit.