Security Deposit Loans: How They Work

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

View Rates

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 (conditions apply)
• Origination fee: 0%
• Late fee: None
• Discounts: 0.50% interest rate reduction for enrolling in autopay
• Repayment terms: 24 – 144 months depending on the loan purpose^***

Upgrade

View Rates

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

View Rates

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

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:

^*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice.

^**LightStream will offer a rate .10 percentage points lower than the rate offered on any competing lender’s unsecured loan provided that you were approved for that lower rate (with the same loan terms offered by LightStream) no later than 2 p.m. Eastern time two business days prior to loan funding. The Rate Beat Program excludes secured or collateralized loan offers from any lender, and the competitive offer must be available to any customer with a similar credit profile. Terms are subject to change at any time.

If you believe you have been approved by another lender for a lower qualifying rate, contact LightStream customer service. We will work with you to determine your Rate Beat eligibility and obtain the necessary documentation.

^***Payment example: Monthly payments for a $10,000 loan at 5.95% APR with a term of 3 years would result in 36 monthly payments of $303.99.

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 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.

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.

⁴Approval numbers compare the 2020 loan approval rate by the Upstart model and a hypothetical traditional credit decision model. The APR calculation compares the two models based on the average APR offered to borrowers up to the same approval rate. The hypothetical traditional model used in Upstart’s analyses was developed in connection with the CFPB No Action Letter access-to-credit testing program, is trained on Upstart platform data, uses logistic regression and considers traditional application and credit file variables.