The Money Guide for Renters - Part 2 - Deposit alternatives

At Fronted, we’re helping renters move and bringing decades of financial experience to renters. Money can be an uncomfortable topic, but it doesn’t have to be.

This section we’ll cover rental deposit alternatives but click any of the links to go to:

Part 1: How much money renters need to move? (Click the link to jump to this section)

Part 2: What are the alternatives to rental deposits? (Keep reading)

Part 3: How much should you spend on rent? (Click the link to jump to this section)

Let’s get into it.

To spread the upfront costs of moving, you may use a deposit alternative. At Fronted, we’re a bit of an expert on deposits and we believe that you should know all your choices. That’s why I’ve put together a comparison guide to make your choice easier.

Deposit replacement schemes

These schemes are also known as “deposit-free”, “zero deposit” or “deposit replacement” insurance policies.

How it works:

1. Instead of paying up to five weeks rent for a rental deposit, the tenant makes an upfront non-refundable payment, usually the equivalent of one week’s rent.
2. The scheme provider promises the landlord to cover any damages caused by the tenant, up to around 6 weeks’ rent.
3. The scheme takes the ‘risk’ for the landlord, but the tenant is still liable to damage costs.

What to consider when using a deposit replacement scheme

Before you decide to use a deposit alternative, there are a few things to double-check:

Fees

1. Make sure you are clear on which fees are non-refundable.
2. Most deposit replacement schemes are insurance policies that renew and charge a fee every year. Be aware if there are recurring costs.
3. Some deposit replacements charge you a fee to challenge landlord deductions.

Protection

1. What does your insurance bond cover? These schemes usually protect the landlord and not the tenant.
2. The scheme provider will chase you if the landlord wants to make any deductions.

Not government approved

1. Deposit replacement schemes fall outside the government approved Deposit Protection Schemes.
2. It might not have the same protections as a registered Deposit Protection scheme.

Are you being pressured?

1. Agents and landlords are usually paid a commission for selling these services to renters.
2. Landlords and agents cannot refuse a cash deposit or make you use a deposit replacement service.

Exiting a property

1. When you leave the property, you will not have a deposit to take to the next place.
2. You will pay every time you use a deposit replacement service - which could add up to thousands of non-refundable pounds.

2. Local rent deposit or bond scheme

Councils and charities are known to pay the rent deposit for tenants who meet their requirements. Some schemes may ask for an external guarantor.

How it works:

1. The tenant applies for the scheme via their local council.
2. Council assesses the application
3. If approved, the deposit is issued directly to the estate agent or landlord.

What to consider when using a local rent scheme

Tenants may need to be on housing benefits or meet specific financial requirements. These services only exist to help the most vulnerable people.

3. Tenancy deposit loans

Instead of paying a regular deposit all at once, renters can pay it over 12 months with a rent deposit loan. The tenant applies for their deposit to be paid by a company and they pay it back over 12 months with interest. Full disclosure: this is what we do with the Fronted Deposit*.

How it works:

1. The tenant applies.
2. Tenant’s affordability is checked using their details and banking data.
3. If accepted, the deposit is directly paid into the agent’s bank account and protected in a government scheme.
4. The tenant pays back the loan over 12 months (or settle early with no fees).
5. Once the rental deposit loan is paid off, the deposit in the scheme is returned to the tenant when they move out.

What to consider when using a tenancy deposit loan

Before you decide on using a tenancy deposit loan, there are a few things to double check:

If the service does a soft or hard credit check

1. Hard credit checks can impact your credit score. A soft credit check (like we do at Fronted) means even if your application is denied, there is no impact to your credit score.

Total amount repayable

1. If you’re weighing up your options, you may want to check the total amount repayable. All regulated financial products will have this information during your application. This makes it easy to see if you’re comparing against the options particularly if you’re considering high interest credit cards.
2. We believe that you shouldn’t be charged any early repayment fees for doing the responsible thing of paying off your loan. But there are companies that may charge you. It’s worth reading the fine print on early repayment fees or subscription charges.

Does it give you the freedom to move?

1. Properties move fast, it’s why you’ll get a decision on your Fronted Deposit application within 24 hours. If other deposit products have longer approval times, make sure you factor it in.
2. Some companies can only offer this option for properties listed on their site, however the Fronted Deposit works on any property (see more details here) meaning you can find your true dream rental.
   

Rental deposit alternative comparison table

Here’s a comparison of total costs for a single deposit from the main deposit option providers, and using the average rental costs in both London and across the UK.

Want to check out your options?

Check if you can get a Fronted Deposit you can see if you prequalify here.

Or head to part 3 of the Money Guide for renters where we break down how much you should spend on rent.

*Representative example: Amount of credit: £1,100. Term: 12 months. Repayments: 11 monthly payments of £97.26 and one final payment of £97.24. Total amount payable: £1,176.10. Representative APR 12.50%. No fees.