Security Deposit Loans: How They Work
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Security deposits are necessary for apartment rentals, and not everyone can afford them. That’s when a security deposit loan may come in handy.
Typically equal to the first month’s rent—or sometimes first and last month’s rent—this amount is usually requested by a landlord in order to guarantee that a tenant will pay rent and properly care for an apartment. If a tenant fails to pay rent or damages, the landlord will keep all or part of the security deposit as compensation.
Read on to learn more about your options when it comes to security deposit loans, as well as whether or not they are the right choice for you.
On this page:
- Types of Security Deposit Loans
- Using a Personal Loan for a Security Deposit
- Lenders offering Security Deposit Loans
- Pros & Cons of Using a Security Deposit Loan
Types of Security Deposit Loans
There are two main types of personal loans: secured and unsecured. An unsecured loan does not require the borrower to put up collateral (personal property, such as a car) to be approved.
As a general rule, borrowers must have good credit to be approved for an unsecured personal loan. In addition, unsecured loans often have higher interest rates than secured personal loans.
Using Personal Loans to Cover a Security Deposit
Because personal loans can be used to cover a security deposit, it can be helpful to better understand how these loans work.
Personal loans can be offered by banks, credit unions, and online lenders. Applicants are approved based on their credit score and financial history, with lower interest rates and terms offered to applicants with higher credit scores and a better history of paying off their bills on time.
If you don’t have excellent credit, you can take out a secured loan to receive lower rates. The reason a secured loan may help you receive a lower rate is due to the collateral you are attaching to the loan in the event you can’t keep up with repayment.
Once the loan is approved, the funds are disbursed, and the borrower can spend the money as he or she desires. Then the borrower will make regular monthly payments to repay the loan.
Lenders Offering Security Deposit Loans
Taking out a personal loan to pay for your security deposit could be a sign that you’re not financially ready to move out or the apartment you’re considering is too expensive.
Personal loans are a form of debt and the interest you will be charged will mean that you need to pay off more than just the cost of the security deposit itself.
That being said, if you must use a personal loan to afford your security deposit, here are a few companies that offer loans that can be used to cover the cost. Make sure you only take out what you need so that you can limit the total cost of your loan.
- For good credit (660+): LightStream
- For fair credit (620+): Upgrade
- For bad credit (580+): Upstart
LightStream
Rates (APR)
3.49% – 19.99%
with AutoPay
Loan Amounts
$5,000 – $100,000
Credit Score
660+
LightStream is our top-rated personal loan lender. The lender’s Rate Beat program will beat any rate a competitor offers by 0.10 percentage points. Be careful though, LightStream’s minimum loan amount is $5,000. If you have a security deposit that is less than that amount, you should not borrow up just to take out a loan with LightStream. You should consider other options.
- Credit score category: Excellent, good
- Soft credit pull to check rates: Not available
- Deposit time: As soon as the same day
- Origination fee: 0%
- Late fee: None
- Discounts: 0.50% interest rate reduction for enrolling in autopay
- Repayment terms: 24 – 144 months
Upgrade
Rates (APR)
7.99% – 35.97%
Loan Amounts
$1,000 – $35,000
Credit Score
620+
Upgrade is a great option for borrowers with bad or fair credit, as well as those that need smaller loans. You can check rates without affecting your credit score to make sure you are satisfied with your loan terms before submitting the final application.
- Credit score category: Fair, bad
- Soft credit pull to check rates: Yes
- Deposit time: As soon as the next day
- Origination fee: 2.9% – 8%
- Late fee: $10
- Repayment terms: 36 or 60 months
Upstart
Rates (APR)
8.41% – 35.99%1
Loan Amounts
$1,000 – $50,0002
Credit Score
600+
Upstart is an online lending platform that partners with banks to provide personal loans that can be used for almost anything. Upstart’s lending model considers education, employment, and many other variables when determining eligibility.3 This model leads to 27% more approvals and 16% lower rates than traditional models.4
- Credit score category: Fair, bad
- Soft credit pull to check rates: Yes
- Deposit time: As fast as one business day
- Origination fee: 0% – 8%
- Late fee: $15 or 5% of payment
- Repayment terms: 36 or 60 months
Pros & Cons of a Security Deposit Loan
Pros
- A personal loan may improve the credit score of renters with poor credit if you make on-time payments throughout the repayment process. (Read: Can a personal loan improve your credit score?)
Cons
- The interest on the loan will ultimately mean you are paying more to borrow the money.
- Going into debt in order to pay for a security deposit may be a sign that you aren’t financially ready to live independently. You may want to consider other places to rent from that may be more affordable.
Recap of Security Deposit Loans
While a personal loan can be used for a security deposit, it probably is not the best idea from a financial standpoint. Personal loans create debt, and when they are being used to rent an apartment, they aren’t building equity.
If you need a personal loan for a security deposit, the better idea might be to wait to get an apartment until you can afford the deposit. If you can’t wait, here is a recap of lenders you may want to consider:
| Lender | Rates (APR) | Min Credit Score |
| LightStream | 3.49% – 19.99% | 660+ |
| Upgrade | 7.99% – 35.97% | 620+ |
| Upstart | 8.27% – 35.99%1 | 600+ |
1The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 15% and 36 monthly payments of $33 per $1,000 borrowed. There is no down payment and no prepayment penalty. Average APR is calculated based on 3-year rates offered in the last 1 month. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
2Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Loans are not available in West Virginia or Iowa. The minimum loan amount in MA is $7,000. The minimum loan amount in Ohio is $6,000. The minimum loan amount in NM is $5100. The minimum loan amount in GA is $3,100.
3Although educational information is collected as part of Upstart’s rate check process, neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.
4As reported by the Consumer Financial Protection Bureau, based on an internal Upstart study which compares outcomes from Upstart’s underwriting and pricing model against outcomes from a hypothetical model that uses traditional application and credit file variables and does not employ machine learning (traditional lending model).
