Finding the house of your dreams is not something that people experience every day. Most times, renters have to settle with what’s practical and within their financial reach. But if you’re part of the lucky few who find the apartment they truly want within their budget, you’ll do everything within your power to secure it for as long as possible.
Some of the steps you will take may include taking a loan if the landlord wants a security deposit beyond your financial reach. Security deposit loans are lifesavers for renters who need a specific amount of money to get the apartment they want. But how does this loan work and is it ideal for every renter? This article explains a rental security deposit loan and how it works.
What Is a Security Deposit Loan?
A security deposit loan is a loan that provides an amount of money required by the owner of a property or business as a guarantee that renter or buyer won’t default in payment or cause damage. Security deposits usually apply in rental properties, although they are not exclusive to them. When renting, landlords ask for a guarantee that the renter won’t damage their properties or default in payments.
The generally required sum is the same amount as three months’ rent but some landlords may ask for more than that, depending on the renter or the type of apartment. However, the security deposit can’t exceed the amount of six months’ rent. You can visit: www.billigeforbrukslån.no/lån-til-depositum/ if you plan to move to Norway or are already renting there. It provides details of getting security deposit loans and how to secure them from specific lenders.
As with other loans, a security deposit loan comes as a lump sum because you need to deposit everything to an account designated by you and the property or business owner. In the case of renting, you and the landlord will be signatories to the account so none can withdraw or use the money without the other’s consent.
At the end of your lease, the money returns to you if there is no damage or incident on your part that requires repairs.
How Does the Loan Work?
As mentioned, a security deposit loan comes as a complete sum, the same amount you applied for. You’ll have to repay it over an agreed period with interest. Follow the steps for application as detailed by the lender to get approved and receive the loan. For some lenders, the repayment period is up to five years, while some stipulate less time for repayment.
Note that the longer the period is, the larger the interest becomes and the shorter it is, the lower the interest is. The amount can vary by lenders. Some offer as low as $1,000 and others may offer as high as $50,000. However, the amount you receive depends on a few factors, including your credit score and financial history.
It’s best to get a loan that covers the specific deposit amount and use it for that purpose instead of borrowing more than is required and pushing yourself further into debt. A security deposit loan can be covered by a personal loan; in fact, most deposit loans are personal loans. A personal loan can be secured or unsecured and knowing which favors you better will guide your decision.
Secured Personal Loans
A secured personal loan is one where you provide collateral before getting the money. The collateral is usually a valuable asset, such as property or car, so that the lender has a guarantee that their money can be recovered if you fail to repay the loan.
The biggest advantage of taking a secured loan is that the interest rate is usually lower. The lender already has a guarantee of payment and doesn’t need to push the interest as security. Therefore, the total amount you repay – both the principal and interest – is not much higher than the sum you took as a loan.
Also, the loan amounts are pretty high so you don’t have to worry about having enough for the security deposit. Still, it can be tricky because your asset is on the line and you may lose it if you fail to meet multiple payments over a certain period.
Unsecured Personal Loans
On the flip side, an unsecured personal loan is the type that comes without requiring collateral. This is the most common type and is popular because of its ease. You don’t need to present an asset to stand as a guarantee if you fail to repay. That means the lender trusts you to pay the money within the agreed period without fail.
But the downside is that such loans are usually small and come with high interests. In some cases, the amount is smaller than what you need for the deposit, which may necessitate taking another loan or paying out of your pocket. Still, unsecured personal loans are disbursed quickly, some as quickly as the same day you apply, and are ideal for emergencies.
It’s important to note that secured personal loans work best for borrowers who don’t have the right credit score to get the money they need. They can use collateral to guarantee repayment if their score is lower than required.
Unsecured personal loans work best for people with high credit scores because the scores show their financial integrity and are a promise that they can and will repay what they borrow. However, there’s no hard and fast rule for lending nowadays. You’ll find lenders willing to work with bad credit score borrowers, even with those with scores as low as 580, giving them unsecured loans.
For such borrowers, the interest rate is usually very high and repayment terms may not always be favorable. But for borrowers with scores as high as 690 and above, the terms are more favorable and the interest is lower.
Where to Find Credible Lenders
You can borrow money from several places to cover the security deposit on a house you want to rent. But a few places offer the most security and assurance of approval.
1. Banks
One of the first places to check for a security deposit loan is a bank. A bank offers security and the assurance that you’ll get approved, especially if you’re a customer. Since such loans are not heavy, your bank should be willing to provide the funds and offer you a fair repayment period and other terms.
Speak with your account officer or any other person within the system to see how to start the process and how favorable it will be in the long run.
2. Online Lenders
The most popular source of finding lenders is online. With the advancement of technology, every company strives to go online and remain relevant. That means you’ll find an unbelievable number; choosing will become the problem. Follow a strict list to narrow the options and eliminate frauds before selecting the right lender.
It helps to pick three or four and check their terms and loan amounts for deposit loans before deciding. Using online lenders is quick and accessible because there are no red tapes to cross. Fill out the form online and provide all the necessary documents; you may receive the money the same day.
3. P2P Lenders
Peer-to-peer lenders, or P2P, are a third option to consider. They provide an easy process and offer quick fund disbursement. Although the loan sums are typically small, you’re sure of not paying anything extra because they cut out the middleman to create a seamless process. That means you’ll speak directly with the individual who is the lender and discuss the terms without the interference of a middleman.
Consider other sources of finding the money instead of borrowing. One way is to ask your loved ones. You can treat it as a loan if it helps you remain accountable. Another option is getting a salary advance to cover the costs. You can also get an extra job that provides enough to pay the deposit and covers part of the debt repayment.
A cheaper apartment may work because it might have a lower security deposit or none at all. Click here to learn more security deposits.
Conclusion
Deposit loans are important when renting a house or an apartment. They reduce the financial burden of paying the rent and covering the cost of the deposit, which is usually a sum of three months’ rent. In some cases, the lender doesn’t stipulate what to do with the money, so getting more than you need will help to cover other expenses.
However, keep in mind how the loan will affect your income and other debts. Also, note that bad credit attracts higher interest and less favorable loan terms. It helps to get the exact amount you need and give a standing order to your bank to deduct and pay the loan when due, even if you don’t initiate payment, until payment completion.
