Understanding Alternative Security Deposits

June 06, 2024

Before moving into a rental property, you will likely be asked to put down a security deposit. In general, this set amount of money is held by the property manager for the duration of your lease and helps cover the cost of any significant damages to your unit beyond normal wear and tear or unpaid bills that you are responsible for paying.

Future renter reviews documents in front of a computer

Your property manager will return your security deposit when you move out, minus any deductions needed for repairs. However, when combined with other payments due at move-in, this additional upfront cost can be a challenge for some renters. In some cases, alternatives to traditional security deposits may be available to you, but it’s important to understand the potential benefits and disadvantages of those options.

What are my options for alternatives to security deposits?

Many companies offer options as alternatives to traditional security deposits, and some property managers may be willing to work with you to create solutions that decrease the amount of money due upfront. The best choice for you will depend on your specific situation, so start by talking to the property manager to explore your options and make a plan before you apply for a lease.

Here are some of the most common alternatives to traditional security deposits:

  • Recoupment. The renter agrees to pay the property for any damages up to a pre-approved amount. If the renter fails to pay for any damages at move out, a deposit company will bill the renter for the amount owed to the property.
  • Insurance. The renter obtains and pays monthly premiums for an insurance policy, up to a certain limit, to cover any renter-caused damages.
  • Installments. Rather than paying the full deposit amount at move-in, the renter pays in smaller installments, typically monthly.
  • Loans. The renter takes out a loan from a lender to cover the amount of the security deposit.

How do I get my security deposit back?

Regardless of which option you choose, it’s important to know upfront the different financial implications and your obligations under each option. Opting for one of these alternatives and not paying a traditional security deposit will likely affect how much of your related expenses you get back, if at all, at move-out.

In addition, alternatives to the traditional security deposit may seem attractive at lease signing, but the cumulative out-of-pocket costs may be more than the amount of the traditional security deposit in the long run. Furthermore, depending on the option you choose, you may also still be liable for costs associated with damages to your unit.

Talk to your property manager before signing your lease to make sure your agreed-upon terms are documented and to ensure you fully understand the details of your lease agreement, including under which scenarios your property manager can charge you for repairs and replacements.

My Home in your inbox

Sign up to receive resources, tools and tips about buying, owning, refinancing, selling and renting a home in your inbox.