Security Deposit Loans

The new apartment you found will likely require a full month’s security deposit prior to moving in. While you may have the first month’s rent, it can be quite a stretch to come up with another month’s rent for security. This is the type of scenario where a security deposit loan is often sought to help you get into the apartment.

A security deposit loan is a bit different from other types of loans. In this type of loan, you do not actually spend the money. Instead, it is held in escrow by your landlord to protect against property damages during your occupation of the apartment or rental home. As long as there are no damages beyond normal wear and tear, your security deposit will routinely be returned to you within 30 days of your vacating the property, so long as you fulfilled the terms of your lease.


This delay is what often creates a hardship when moving from one rental property to another. Your new landlord wants a security deposit in addition to the first month’s rent, but your old landlord can legally hold your previous security deposit for up to a month. Ideally you would just be able to transfer the security deposit from your old landlord to your new one.

This is where some people will utilize what is sometimes called a security deposit loan to fill this gap. It allows you to meet the move-in cash requirements while you are still waiting for your old security deposit to be returned to you. You are expecting to receive all or most of your old deposit in exchange for leaving the property in suitable condition.

A security deposit loan can be a big help when you are short on cash but need to move. There are some risks to taking out this type of loan.

First, the interest rates tend to be higher, so you will end up paying more back than you might for other types of loans. This can cost you more over the long run, so it is important to repay the loan as soon as possible to limit your expense.

Second, there is a risk that you may receive far less of a refund from your previous landlord. If you caused damages to the property or if there were excessive cleaning costs, then those would be deducted from your balance. For extreme damage, you could end up owing money on top of your security deposit. If you were counting on a full refund, then you could end up with less than you were counting on to repay your loan.

Finally, your loan payments would deduct from any money you could borrow for other needs. For example, you would want to repay this loan in full before attempting to borrow money to buy a car.

Shorter term loans are available from banks and credit unions that meet the description of a security deposit loan. These are a much better option than payday loan companies or tribal lenders that tend to charge usurious interest rates. The APR will tell you if it is a good deal or not.

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