Moving into a new apartment can require putting down a lot of money up-front. One of the main costs prohibitive for many renters is the security deposit, a lump sum that the landlord will typically keep until you move out in case of any damages. But with security deposit alternative services offered by financial technology companies, renters are now getting the opportunity to bypass this requirement altogether.
While these options can be “useful in the short term because they help keep cash in your pocket,” they do carry risks, said The New York Times. And they are certainly not cost-free. Here is what to know.
How do security deposit alternatives work?
They replace the “need for a large up-front payment with other financial products or payment structures,” said Rentable, a security deposit management and assistance app. Instead of paying the traditional security deposit in a lump sum, “renters may pay a non-refundable fee or monthly fees, which are paid directly to the service provider and are typically not refunded.”
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The exact model depends on the service, which the landlord will usually choose. Generally, “these alternatives tend to cluster into three categories: surety-bonds, insurance-type models and installment financing products,” said Tax Credit Adviser, an outlet covering the affordable housing industry. “The surety bond structure requires an initial payment,” while “an insurance-type model adds an additional premium to tenants’ monthly rents.” Meanwhile, the installment option involves making smaller payments over time (a personal loan is a common example of an installment debt).
Why are renters using them?
It is estimated that “millions of renters use the services,” said the Times. The reason? Many “struggle to cobble together cash for the up-front costs needed to sign a lease.” Not only does a security deposit alternative allow you to avoid that large lump sum due at the outset, that money is also not tied up for the duration of the time you rent.
Typically, a security deposit runs “about $800,” said the Times, citing a 2025 survey of renters by Zillow. And that cost is often in addition to a number of other initial expenses, such as an application fee and first and last month’s rent.
Are there any risks or drawbacks to these services?
Although it is possible a security deposit alternative could save you — or, at least, save you from forking over a large amount at once — they do still involve handing over money. For example, “if you used an alternative service with an annual fee of $130 at a property that required an $800 security deposit, and you stayed at a property for 10 years, you would have paid $1,300,” said the Times. Unlike a traditional security deposit, however, these amounts are not refundable.
There are also potential “legal and regulatory issues” involved in these alternatives, since they are “relatively new” and “some areas may limit use,” said Buildium, a property management software company. The protection offered is not necessarily the same, either. “If your landlord files a damage claim during your lease, none of the fees paid to the alternative services apply toward those costs,” said the Times, potentially putting renters in the position to pay more.
