Some landlords are ditching security deposits for alternatives

Some landlords are offering alternative security deposits hoping to breakdown that initial upfront lump sum by providing an option to make monthly payments instead.

But is it a good idea for you? The Sum is breaking it down.

To Sum It Up

• New companies are challenging the way we handle security deposits.

• This new system is called a “security deposit replacement.”

• It allows companies to charge tenants nonrefundable fees every month instead of the lump sum tenants pay upfront.

The Background

• A security deposit is a set amount of money paid before taking occupancy of a rental property, often equal to one month’s rent.

• If you damage the property, the landlord can use those funds for the repairs and you should get the rest of your money back.

• The “Renter’s Choice” legislative movement is pushing for city and state governments to decrease upfront rental costs and provide options for renters by requiring that landlords offer security deposit alternatives.

What’s Happening

• These security deposit alternatives often charge tenants between $10-30 a month. But tenants won’t get any of that money back as they would with a traditional deposit.

• The fee tenants pay provides coverage up to what the security deposit would have been.

• These allow tenants to move in without the high payment upfront and still give the landlord financial security.

Why It Matters

• Tenants can end up paying much more with an alternative deposit than with a traditional one and don’t always get the same protections.

• The level of protection tenants have with alternative or traditional security deposits varies depending on state law.

Sources

• CNBC: ‘Buy now, pay later’ loans make it tough to get a handle on your credit
  
  

• National Housing Law Project: Regarding Security Deposit Replacement Products

• CNBC: Understanding the risks of buy now, pay later apps
• Renter’s Choice
• Axios: The security deposit gets a makeover

READ MORE ABOUT THIS IN THE SUM

The Sum breaks down complex economic issues and how they impact your life in just a few minutes a day. Follow thesum.news on Instagram for the full story.

This story was originally published October 11, 2022 at 4:20 PM with the headline "Some landlords are ditching security deposits for alternatives."

The Sum

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The Sum breaks down complex economic issues and how they impact your life in just a few minutes a day. Follow @thesum.news on Instagram for the full story.