loans for rent deposits
Ashley Corn October 10, 2022

If buying a home is not easy, renting a shelter is not easy either. Even if you can afford to rent a house, you will likely find it harder to pay a rent deposit. In other words, it is known as a security deposit.

The deposit is the money you get back when vacating the property, and until then acts like security for a landlord against missed rent payments and damage to the property.

However, a landlord cannot charge for everyday wear and tear caused to the property. To calculate the tenancy deposit, you need to divide the monthly rent by 12, divide the outcome by 52 and then multiply the quotient by 5.

A landlord is not supposed to overcharge the tenancy deposit. When you submit the rent deposit to your landlord, they will protect you with a deposit protection scheme within 30 days.

They are supposed to give you some information about the scheme they use and keep your deposit safe. There are circumstances when you cannot pay the rent deposit.

You will likely want to finance them but might be confused about available loans for rent deposits. This blog discusses your options when you cannot pay the rent deposit.  

Loans for Rent Deposits that you can use without any Hassle

Although you have various options available to fund your rent deposit, you need to decide which one suits your budget. You should be careful while choosing them. Otherwise, you will end up taking a toll on your finances. Here are the options:

1. Use a Local Rent Deposit Scheme

Your local council may have a rent deposit scheme usually run by charities. They can help you in two ways. For instance, they can provide you with money to be paid in advance, or they can provide a written guarantee to cover the unpaid rent. The local council may have different schemes.

Some of them may provide grants you do not have to pay back, while others include interest-free loans that you are to pay back in instalments. Note that you will have to pay back the scheme if your landlord does not refund the deposit they pay on your behalf.

2. Zero Deposit Companies

Your landlord may suggest zero deposit companies when you are unable to pay the tenancy deposit. This is also known as deposit replacement insurance. The company is liable to pay commissions to agents.

If you get help from these companies, you do not have to pay a rent deposit; other costs are involved. The money you pay is not refundable at all when the tenancy expires. This is just an alternative like others. You are absolutely free to make a choice.

3. Discretionary Housing Payments

If you get housing benefits and universal credit, you are entitled to get discretionary housing payments. You can use this money to pay the tenancy deposit or rent in advance or rent not covered by your benefits.

Note that the council has a limited budget for discretionary housing payments. You will likely not get them or get less money than you apply for. These payments are directly made to your landlord.

4. Instalment Personal Loans

Though these benefits can help you fund the tenancy deposit, they may not always be n alternative. They may not be sufficient for your needs. You can take out instalment personal loans from a direct lender. These loans can be an ideal option when you need a more significant deposit.

The best part of these loans is that you are to pay down the amount in instalments over an extended period. Depending on the amount you borrow, it can be three months, six months or 12 months. However, the repayment term is not going to be more than a year.

You can use these loans only when you have a good credit rating. If your credit report is less-than-perfect, you can still qualify for these loans at a higher interest rate. You must analyse your repaying capacity before taking out these loans.

Otherwise, you will find yourself in a debt trap. Once you fall into debt, staying on top of your expenses, including rent payments, will become more challenging. Your credit score will be brutally damaged.

If you pay down the debt on time, your credit score will go up, making it easier for you to borrow money at affordable interest rates.

If you are unemployed, you can qualify only for those loans exclusively available for the unemployed. These loans are called unemployed loans. However, if you want money to be paid in instalments, you will have to apply for 12 month loans for the unemployed from a direct lender.

These loans will require you to pay down the debt in instalments. Although loans can fund a tenancy deposit, they will cost you a bit more money in terms of total interest to be paid. Make sure you carefully analyze your repaying capacity, so you do not fall into an endless circle of debt.

What other Tips should you follow to have enough to Pay a Tenancy Deposit?

Although you can fund security deposits with the alternatives mentioned earlier, it is always suggested that you have sufficient money in your pocket. Here are the tips that you can follow to have enough money in your pocket:

1. Create a Budget

You should create a budget, so you do not consume the entire money in your recurring expenses. Because you know you are looking for a house to rent, make sure you have already stashed away some of your money.

Use a budgeting app, so you have a clear understanding of how much money you have spent. You can make a manual spreadsheet if you are not comfortable using a budgeting app.

2. Track your Expenses

Your budget will work only if you track your expenses. Spending tracking is essential as it lets you know how much money you have already used up and how much is left to pay for your other expenses. This is the best way to prevent overspending. More often than not, you lose tracking your budget because you do not track your spending.

3. Have an Emergency Cushion

You should have an emergency cushion because it helps cover the expenses for a rainy day. If you need money for a tenancy deposit, you can dip into it. This is more affordable than borrowing money from external sources.

Final Words

There are various loans for rent deposits you can use, but it is suggested that you carefully analyze the pros and cons. Because you know you would need a security deposit, make sure you have already set aside this much money.

If you are struggling to meet your expenses, try to create a budget and track your expenses.