When you are thinking of renting an apartment, you have to also consider the security deposit as well. In fact, you would never be able to move into an apartment without putting up a security deposit. These days, it is mandatory. However, not everybody is able to afford to come up with the first and last month’s rent, plus a security deposit. That is how the security deposit loans come in as a handy option. The landlord uses this type of deposit as a way to guarantee that the last month’s rent will be paid or damages to the property will be taken care of. The security deposit acts as compensation for damages and for any outstanding rent.
Security Deposit Loans to Secure Your Place
How do you define a security deposit? It is basically a deposit you have to pay the landlord to secure an apartment or home with the expectation that the landlord will hold onto this money for any future mishaps in the apartment. It is like a reassurance for the landlord to rent you the apartment. In many cases, the first month’s rent is usually considered a deposit. But not all property owners see it that way. In some cases, you have to pay the first month’s rent plus the security deposit. If the landlord finds nothing wrong with the property after you have vacated it, then you will receive the deposit in full. And you can use it to move into another apartment.
Security Deposit Definition
It is basically a deposit you have to pay the landlord to secure an apartment or home with the expectation that the landlord will hold onto this money for any future mishaps in the apartment.
Reasons for Deposit
Why do landlords collect security deposits? There are different reasons why the landlords collect a security deposit. Some reasons include:
- Bad credit
- Incomplete information provided
- No previous landlord references
- Past landlord experiences
- Having a pet
- Having been out of a job periodically
If you complete an application for an apartment, and it is not filled in completely, your credibility is at stake and landlords can look at it as you withholding important information. This creates doubt. Which is one reason why landlords may want to only rent you the property with a security deposit. If you misrepresent facts while filling out the application, then the landlord is forced to demand a deposit. When asked, if you still refuse to provide the appropriate information, the landlord can choose to deny you the rental approval or add more to the deposit.
If your past landlord provides conflicting information when contacted by your current landlord, this may be a reason to distrust and the need for a security deposit. If you have had a bad experience with a past landlord, that is another reason that the potential property owner won’t grant you entry into the apartment without a security deposit. While this might not seem fair, it is one of the most popular decisions for the landlord. To use past experiences from other tenants to judge current applicants. The landlord’s main focus is to protect their investment at all costs.
Things to Consider
Rather than being upset with the landlord for asking for a security deposit, you should instead seek financial assistance, if you are unable to find the security deposit from the funds you already have. This is where good lenders come in. There are different options available to you. It is best to get a good understanding of the laws associated with being a tenant and a landlord. Every state has its own regulations and guidelines. In fact, there are many states that have a limit on what the landlord can take for a security deposit. In spite of that, there are some landlords who determine the figure on their own. And how much to charge you. When you understand the limits that the state has determined, it helps you to avoid dealing with landlords who practice predatory renting.
Peer to Peer Lending
You can opt for peer-to-peer lending where you get money to borrow from people you know. This puts you in a less pressured setting. Since the rate of interest won’t be as high as the online lender or banking institutions. However, even though, you are borrowing from your peers or family members, this does not mean that you should default on the loan. Your credibility is still important because there will be other times when you may want to borrow again.
What to Avoid
If you want to avoid financial crisis, or you are experiencing any kind of delay obtaining a security deposit loan, there are some critical factors to consider such as:
- Ensuring you have the right income and credit score
- Research various lenders to get the best interest rate
- Don’t ruch to obtain the loan, just from anyone. Be mindful of the financial responsibility associated with the loan
- Reject any loan that offers adverse terms and conditions
- Know the amount to repay
- Try not to repay the loan without automatic bill payment so that you don’t miss any payment
The Debt
You should be mindful that you are in debt to the lender once you are approved for security deposit loans. This means you have to take your obligations very seriously and never miss a monthly payment. Of course, you must be aware that the loan will cost you more than the amount of the security deposit since the interest will be added. With that being said, if you cannot afford to pay your security deposit, you can use different types of personal loans to cover the security deposit as long as you take the debt and your financial responsibility into account. Do not take out a loan that you know you are unable to afford. You should have a limit on how much money you apply for.
Pros and Cons of Security Deposit Loans
Security deposit loans have their advantages and disadvantages. However, there are more advantages and benefits that will serve to help you secure your apartment. For one, having a personal loan for a security deposit means that paying on time will improve your financial standing and credit score. You will be able to use your new financial status to get better apartments in the future or even buy a home. If you don’t have good credit, then a personal loan will have a higher interest rate. Which means that you will be paying a higher cost of borrowing money.
Having debt is not something to take lightly. Even if it is for emergency situations like finding your security deposit, so you can have a roof over your head. It is a financial decision that you should think carefully about. Make sure that you rent an apartment that you can afford so that the security deposit amount you are borrowing is within your financial reach.
Types of Loans
There are different types of personal loans, and security deposit loans namely secured loans and unsecured loans.
An unsecured loan is when you don’t have to use any collateral to obtain the loan. You don’t have to use any personal property, but your credit has to be good in order to be approved. Generally, you have to show yourself in good financial standing with other creditors before you can obtain an unsecured loan.
However, in the case of the secured loan, you can put up collateral. And your credit history won’t be the focal point, even though, it is still important. You pay a lower interest rate with a secured loan than an unsecured loan.
The Personal Loans
Getting a personal loan is one way to cover your security deposit. How does this work? Well, a personal loan is offered usually by a credit union, bank, online lender or other financial institutions. As an applicant, you will be approved based on your financial history and credit score. You will pay a lower rate of interest. And the terms will be lenient if you have a high credit score than what is being asked for. You have to show that you pay your bills in a timely manner.
This is very important. If your credit is not all that great, then you should consider taking out a secured loan, so you can get a lower rate of interest. The collateral along with a good credit score will help you gain access to various lenders offering secured loans. Once you have approval, then you will receive a disbursement of funds within days. You don’t have to let the lender know what you will be spending the money on. You can have any reason. All the lender cares about is that you will be paying back the loan in the allotted time frame and on a consistent basis.
Conclusion
If you have discovered the ideal apartment or home for yourself and it is in a convenient location, the rent is reasonable, the security deposit is affordable. And you like the place, then, by all means, you should seek to acquire it. However, make sure that all your ducks are in a row. This means you should get your credit right, have money to pay down, and choose the right lender. Whether you are applying for an unsecured, personal, or secured loan. If you want to know more about security deposit loans, head on over to the Goalry platform and the Loanry and Creditry stores.
Cheryline Lawson is a personal finance writer who lives in Fort Lauderdale, Florida with her husband and two boys. She has worked as a mortgage broker and loan processor in the most recent past. She shares a lot of her experiencing in financial planning, real estate investing and budget advice with national media outlets like GoBankingRates, Intuit, Bustle, Buzzfeed and CBS News. Ms. Lawson is a graduate of Broward College in Florida. She came into her own as a mortgage broker after realizing so many people need help to get into their first home. She has a passion for helping others, especially those who need financial advice to use in their daily lives.