By Matt Fernell, Editor-in-Chief at Finance.co.uk. Last updated 14th March 2023.
The costs associated with renting have increased significantly over recent years.
You may be left wondering how you’re supposed to afford to pay your deposit and have enough money left over for all the other costs associated with moving.
In this guide, we discuss your options for paying your deposit for your rented accommodation and whether you should consider borrowing the money.
Rental deposits often referred to as tenancy deposits, are used to protect landlords in case you miss a rent payment or cause damage to the property.
Legally, your tenancy deposit should be no more than five weeks’ rent (or six weeks if your annual rent is more than £50,000).
At the end of your tenancy, you’re entitled to get your deposit back, however, your landlord can only deduct money from your deposit with a valid reason. Most commonly, this will be damage to the property or missed rent payments. Your landlord can’t deduct money from your deposit for general wear and tear.
Depending on your tenancy type, your deposit will need to be protected in a tenancy deposit plan (TDP). The TDP scheme is designed to keep your deposits safe and prevent landlords from keeping them without good reason. There’s three TDP scheme providers in England:
You can find more information about rental deposits, and renting in general in our guide: Everything you need to know about renting a property in the UK.
Theoretically, you could pay your tenancy deposit by:
However, it’s generally up to the landlord or letting agent which form of payment they’ll accept. Private landlords may also accept cash payments, but if you can, it’s a good idea to avoid paying in cash.
If you absolutely have to pay your deposit in cash, make sure you get a receipt; it may be important in the future.
Saving the money for your rental deposit will be cheaper than borrowing to cover it, so if you can, try to pay your deposit with a debit card, cheque or via bank transfer.
If you don’t have enough money saved and don’t have time to save the money before you need to move into a rented property, you may be able to borrow the money you need.
Whilst there’s nothing wrong with borrowing the money for your deposit, some landlords might not rent to you if you need to borrow the deposit, as this may indicate you’re in financial difficulty.
Many landlords prefer tenants who’ve saved for their deposit because it gives them the impression that you’re financially responsible.
If you borrow the money on a 0% credit card and manage to repay it before the end of your interest-free period, then it shouldn’t cost you any more than if you’d saved the money.
An interest-free money transfer credit card could be a smart option for paying your deposit. Money transfer credit cards let you transfer money from your credit card to your bank account. But you’ll need to repay this before the interest-free period expires.
Unfortunately, 0% or interest-free credit cards are often only available to those with a good credit score, or you might only be able to get short interest-free periods. If your credit card does charge interest, this could be an expensive way of covering your deposit.
It’s also worth considering your credit limit before paying a deposit with a credit card. Ideally, you should aim to keep your credit utilisation to around 25% of your credit limit. Otherwise, lenders or other people with access to your credit report may think you’re in financial difficulty, as you’ve become to reliant on credit to get by.
You could also get a personal loan to cover your rental deposit. Though be careful if you do choose this option. Loan repayments could make it more difficult for you to keep up with your rent and other financial obligations.
You’ll also be charged interest on a loan; this can be especially high if you’ve opted for a short-term loan. This means you’ll essentially end up paying more to be able to cover your deposit. The cost of the loan will depend on how much you borrow, how long you borrow over, and your interest rate (APR).
Before considering borrowing for your deposit, you need to ensure that you’ll be able to cover the repayments and keep up with your rent and other financial obligations.
Using a loan calculator could give you a good indication of how much your loan repayments could be; then, you’ll need to add this to all your other outgoings to check that your income will cover it.
Overdrafts are one of the most expensive ways of borrowing money. They are designed for short term borrowing of smaller amounts, so should be avoided, unless you have a plan to repay it quickly, in which case they can be a useful way to borrow if you need access to money quickly.
Most overdrafts can be arranged the same day you apply for one with the bank you have a current account with.
If you’re able to borrow from your friends or family, this can be a good way to cover your deposit and avoid paying interest, but be wary, borrowing from loved ones could put a strain on your relationship.
Make sure you put any agreements you have in writing and consider the downsides before borrowing money from your friends and family.
Saving can be tricky, and you need to be strict with yourself to be able to achieve your savings goal.
The best way to save is to transfer spare cash into a savings account each month. It might be a good idea to open a savings account that has restricted access, so you can’t instantly transfer the money and succumb to impulse spending.
In order to save enough for your rental deposit quickly, you may need to reduce your monthly expenses. This might include cutting back on luxuries, swapping groceries for own-brand alternatives and reducing your recreational spending.
It’s a good idea to create a budget to get an overview of your spending and how much you can afford to save. If you want tips on making a budget and sticking to it, you can check out our budgeting guide.
If you’re on a low income, or need to move quickly, saving for your tenancy deposit can be particularly difficult.
You could be eligible for help covering the cost of your rental deposit through a rent deposit or rent guarantee scheme. Most of these schemes are to help prevent homelessness, or for people who have an urgent need to move.
A rent deposit scheme lends you the money to pay your deposit, which you’ll need to pay back over time. It’s like using a loan to pay your deposit, but instead of borrowing from a lender or bank, your loan comes from your local council, it’s also interest-free which means it doesn’t cost you anything.
Unfortunately, not all local councils will have rent deposit schemes available, and those that do, may have strict eligibility requirements.
Rent guarantee schemes, also known as bond schemes, give your landlord a written guarantee that your rent will be covered, even if you can’t afford to pay it yourself. The scheme provider uses this bond instead of a cash deposit, so you won’t need to pay your deposit yourself.
However, if money ends up being paid out through this scheme, you may need to repay the scheme provider over time.
If you’re facing homelessness, you may be able to get money from your local council through a homelessness prevention fund or social services. Each council has their own rules surrounding these kinds of payments, and you might have to repay the money when you’re back on your feet.
If you need to move urgently, or you’re at risk of becoming homeless, you can contact Citizens Advice or homeless charities such as Shelter or Crisis to find out more about help available to you.
When it’s time for you to leave your rental property, you should try and do all you can to avoid deductions from your deposit. Don’t forget, you are entitled to get your deposit back, and your landlord or letting agent can’t make deductions without good reason.
Here are some tips on making sure you get your deposit returned to you:
Don’t forget, you can dispute deductions your landlord makes, and if you can’t reach an agreement, you may be able to take your landlord to small claims court; unfortunately this process could end up costing you more, especially if the court doesn’t rule in your favour.
The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.
