Borrowing money to afford deposit can lead to increased interest costs

Michael Lloyd

January 3, 2020

Borrowing money on a credit card, a personal loan or payday loan to be able to afford a tenant deposit can cost between £44 to £2,794 in interest, alternative deposit scheme Ome has found.

This variation depends on rate and credit score over a year long term.

For many, the average tenant deposit cost of £1,299 is manageable but the issue is the requirement to pay the full sum upfront, leading to many having to borrow money to be able to afford it.

Matthew Hooker, co-founder of Ome, said: “For many tenants, the financial hurdle of a deposit is more of a cash flow problem than an affordability issue and as a result, many are forced to borrow the money in order to secure a rental property.

“This only adds to the financial stress that renting can bring and with rents continuing to climb, not only are tenants paying a large sum to a landlord each month, but also to their lender with the addition of interest.

“This is particularly testing for those with a poor credit score who have no choice but to borrow with some very high interest rates and of course, should they borrow for a longer-term, they will also pay more in interest.

“This large upfront obstacle in the way of a tenant deposit is one of the driving reasons we launched Ome in order to address the issue of cash flow for the UK.”

Using a credit card with a low rate of interest is the most cost-effective way to borrow a rental deposit.

At an average rate of 6.4% it would cost £112 a month to pay back over 12 months with £44 in interest.

A medium rate at an average of 18.9% would set you back £119 a month with £126 paid in interest, while a higher rate at 36.3% would come in at a monthly cost of £128, paying £231 in interest.

With a good credit score, a personal loan at a rate of 11.4% would cost £115 per month with just £78 in interest, the second most affordable route to borrow a rental deposit.


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