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Compare 7 security deposit alternative companies
Depending on where you live, security deposits range from the low end of $300 to a high end of $2000+. This can be a lot of money to come up with, especially if you are just starting out. A security deposit alternative product allows you to pay a monthly fee instead of the deposit, but there are pros and cons to the approach. Here’s what you need to know.
What is a security deposit alternative service?
Security deposit alternative services include renter financial products such as surety bonds, deposit installment agreements, rent guarantees, and credit authorization services. These services do not get rid of your lease agreement requirements entirely, but they may be able to help you rent an apartment, condo, or house with less money required upfront. Security deposit services replace a traditional security deposit, which is why they are sometimes called security deposit replacement services.
Types of security deposit alternatives:
1. Surety bonds
Companies that provide this service pay damages up to the target deposit amount, should the renter leave damages or default on the lease agreement. Some refer to it as “insurance.” But it is NOT insurance. Or at least not insurance for you, but instead it provides protection to your landlord. You are still responsible for a damage bill at the end of the lease, should there be any damages.
Cost: Roughly 20 percent of the full deposit.
2. Security deposit installment agreements
This agreement may allow you to pay the deposit over a few months or over the entire lease term.
Cost: Full security deposit in multiple payments.
3. Rent guarantees
Like a surety bond, the company, a third-party co-signer, guarantees to pay for damages should they occur. They can be difficult to qualify for and lead to a large expense for residents.
Cost: Often a flat, up-front fee up to one months rent.
4. Credit authorization services
This type of service allows owners to charge their service rather than requiring the renter to pay the security deposit. Renters may pay back in installment payments.
Cost: Amount of damage up to deposit amount plus a small monthly fee (often $10).
How does a security deposit alternative product compare to the traditional process of a security deposit?
Traditional security deposits and security deposit alternatives satisfy the landlord’s need to have access to funds if you cause damages to the property or default on your lease. For example, if you put a hole in the wall, the property manager would bill the service, and then the service would bill you. Or, if you skip out on your last month of rent, the service will pay your rent (up to the deposit amount) and then bill you.
Depending on the type of services used, here are a few advantages and disadvantages.
Security deposit alternative advantages
- Renters avoid or delay a large deposit payment
- Low monthly rates and/or installment payments
- Renters may get into a new apartment more easily
Security deposit alternative disadvantages
- Renter still has to pay for all damages and fees
- Some terms of the original lease may not apply
- Terms and rights may be confusing
- Payments are not refundable
Pros and cons of 7 security deposit alternative products
We looked at seven popular products. They are not ranked, but listed alphabetically.
How much does a security deposit alternative cost?
Security deposit companies most often charge a low monthly fee or a one-time annual fee. The fee is calculated using a few factors: the amount of rent, amount of deposit, the creditworthiness of the renter, and the value of the property management client.
Under the best conditions, assuming rent of $1500 per month, you may be paying as low as:
- $75 per month if the rate is five percent of rent.
- $262.50 at the beginning of the lease as a one-time fee.
- Rates may be as low as $8-$10 per month if you live in a large apartment community.
Can a security deposit alternative service help me save money?
No, ultimately you are adding another expense to your monthly budget and will have nothing at the end of the lease to use for your next apartment. In addition, you will likely end up paying more in the end. That said, if you don’t have enough for a deposit, then it may be your only choice.
For example, if your landlord charges the security deposit alternative service for $500 of damages, the service will pay your landlord $500. You will be responsible for paying the service back either all at once or in monthly installments, depending on your agreement. If you have a dispute with your rental agency, you have to settle the dispute with the property manager directly rather than with the security deposit service.
Everything you need to know about security deposits: Ultimate guide to security deposits for renters 2021.
What to look for in a security deposit alternative product
Most likely, you’ll have one choice that your property provides or partners with, if at all. Security deposit alternatives are currently offered fewer than 15% of the apartments nationwide. When reviewing terms, read the details carefully and make sure the company is responsive to your questions.
Before you sign, make sure you 100 percent understand what,
- Your monthly or yearly payment obligations
- Damages may be paid after you move out
- The payment obligations are for repaying payouts
- To do if you need to dispute charges
- Happens if your lease agreement changes
- The requirements are if you have roommates
- What happens if you end your lease early
If you do not understand these important topics, ask the service provider for clarification before you sign. And keep in mind that your new landlord may not understand the agreement as well as the actual provider. It is much better to get the information you need from the original source.
How does a security deposit alternative work?
Security deposit alternatives work by ensuring to your landlord that you’ll meet your deposit obligations. Like a co-signer, they are taking a risk for you. If you cause damage or miss rent, they guarantee to the landlord that they’ll get their money. If you cause damage, they pay your landlord the requested damage balance for you. And then, you are obligated to the service to pay them back. They can use legal means to obtain the money if needed.
How do I apply for security deposit alternative services?
In many large apartment communities, the property manager will offer these services to you. Some services, such as Jetty, primarily work with the property manager to provide their applicants these services.
Some companies also offer services directly to the renter, but the renter may have to persuade the landlord to agree to accept the service. If this is the case, the security deposit service will give you the information you’ll need to provide to your potential landlord.
The first step towards obtaining these services is to see if the company provides services in your area or chosen community. If they do, ask the property manager about applying for these services.
What security deposit alternatives cover
They cover the same expenses a traditional deposit does, such as damages, back rent, legal fees, and unpaid utilities. Most limit payments to the original deposit amount. For example, if your landlord charges the company $1750 in damages, but the initial deposit was $1500, they will only pay out $1500. Or, some offer different coverage amounts such as $2000, $3000, or even $5000. In this scenario, the landlord would get $1750 if you have a $2000 coverage plan.
Either way, you are always obligated to pay the damages and fees charged to you by the security deposit alternative company. If you are approved, you’ll usually be notified within 24 hours.
How damages are covered
The security deposit alternative company pays the move-out costs for you directly to the property management company. However, they do not dispute charges for you. If you need to dispute charges, you’ll have to take that up with the landlord or the local courts. If you win your dispute, you are still not off the hook with the security deposit service. You have to recoup funds from the landlord directly.
Is using a third party security deposit alternative product worth it?
It can be. If you cannot afford to pay the full deposit all at once, it can help you qualify to get the keys to your new home. If you can afford the deposit amount, but it would deplete your savings, it may also be worth it. It may not be worth it if you can easily pay the deposit. Another consideration is that payments are not refundable like a traditional deposit.
If you pay the deposit in the traditional manner, you and your landlord must follow the terms of the lease agreement. If you work with a third-party, you are obliged to the lease and the third-party. If you have a dispute, it may be more challenging to get your funds returned to you since the landlord is paid automatically, and you have to try to get the money back from them that you think was unfairly paid.
Security deposit alternatives FAQs
1. What happens if my landlord charges me for damages?
Using a security deposit service, depending on the service, the landlord sends charges to the service, and then the service pays for the damages. If the service has already paid your landlord, but there are additional fees, you may be obligated to pay the extra. If your landlord sends you a bill for damages, review your contract.
2. How do I find a security deposit alternative?
The property management company will often offer you the option to use a security deposit replacement service when you apply for a new apartment. In most cases, the landlord is the client, not you. If they do not provide this option, contact a service that operates in your area to obtain the information needed to help persuade the landlord to accept this type of security deposit alternative.
3. Do I have to have good credit to use a security deposit alternative service?
Many services will extend an offer to you if your landlord has already approved your credit and financial history. Some will review your credit. Your credit and financial history help them judge whether you are the type to skip out on bills or not.
4. What happens if I break the lease?
If you end your lease early, you are still obligated to pay any damages charged to the security deposit company. Obligations may include rent due, damages to the unit, unpaid utilities, and legal fees.
5. Do security deposit alternatives affect my credit?
No. Most services only run a “soft” credit check, and you are not actually taking out a loan with them. If you end up owing the service money, and they pursue a garnishment against your wages, it will not show up on your credit. But it may create a situation that makes it hard to make payments towards debt that does appear on your credit.
6. How much rent or damage is covered?
The security deposit company does not pay more than what is agreed upon in the original contract. This may be the total amount of the standard security deposit. Or, it may be up to the limit of the “coverage,” which is usually $2000 to $5000. If the landlord requests more than the limits, you will be obligated to pay it along with what they paid out.
7. Do my roommates need to have their own security deposit alternative?
In most situations, you only need one security deposit alternative agreement. However, it is often only in one roommate’s name. The landlord doesn’t care who caused the damage or moved out early; the lease still has to be satisfied. At the move-out time, the service may be charged, and the one holding the contract will have to pay back the amount paid to the landlord. This could become a potentially sticky situation with roommates.
Alternative security deposit services can help you get into a new apartment if you cannot or don’t want to pay the total deposit upfront. While services are not available everywhere, property management companies are increasingly working with these types of companies to help them decrease vacancies with minimal risk.
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