Most people who relocate to a new city first opt to rent a property and once settled, they explore the buying option. This is because renting a property is easier as compared to arranging finances and investing a huge sum in buying a property in a place where you are not sure if you would continue to stay. But, is going on rent easy? While it is easier than buying a house, especially if you want to rent for a shorter period of time like 2-3 years, it has its own challenges. One has to pay brokerage charges, one month advance rent, relocating expenses, additional household expenses such as installation of appliances, fittings and fixtures, internet etc. which forms a huge chunk of money and most importantly security deposit.
The biggest challenge in renting a house is arranging the rental deposit or the security deposit amount. Depending on the location- closer to work place or educational institution, rent the property commands and the demand for that property, the rental deposit varies. While most times it is around rent of 2 to 3 months, some of the most sought after locations also take a security deposit that spans to rent of 9-10 months.
Tenants have options to pay this security deposit using credit card, post-dated cheques etc. but what is largely preferred by a landlord is one-time payment that is possible through cash or online transfer. This is possible for a tenant when he avails a rental deposit loan. In this guide, we detail all about rental deposit loan, eligibility, benefits and how to avail it.
What is rental deposit loan?
A rental deposit loan is a loan that a tenant can borrow from a bank or a non-financial banking company (NBFC) institution to pay the security deposit for the property he is renting/leasing.
Interest to be paid on rental deposit loan
The rental deposit loan that is available is between the range of Rs 1 to Rs 5 lakh and one has to pay an interest of around 1.5-3%. These loans also have shorter tenure periods as the amount taken is also small. The tenure for the rental deposit loan is around 11, 22 or 33 months. To get a sense of understanding, we will explain with an example here.
Seema has rented a 2 BHK in Mumbai and signed an agreement for 11 months. She is required to pay Rs 2 lakh as the security deposit for this property for the 11 month period. Seema explores the possibility of a rental deposit loan where she gets the said money for an interest rate of 1.5%. To pay a rental deposit loan of Rs 2 lakh for the 11 months period charged at an interest rate of 1.5%, she will have to pay Rs 3,000 to the bank and for a period of 11 months, Seema will have to pay an interest of Rs 33,000.
Can a landlord avail the rental deposit loan?
Yes in addition to a tenant, a landlord can also avail the rental deposit loan. A furnished property fetches a higher rent than a bare flat. A landlord wanting to do enhancements in the property that he wishes to put on rent and earn an income out of it can avail the rental deposit loan to incorporate these changes in the property.
What are the processing charges involved while availing a rental deposit loan?
A processing fee of 1.5-2% is charged in addition to any applicable taxes on the rental deposit loan that has been sanctioned.
Can a borrower close the loan before the contract ends?
In case a borrower wants to close the loan after six months of borrowing the loan, he can easily do so. He can also do higher repayments and close the loan fast. In case a loan borrower closes the loan before six months, a bank or a NBFC will levy a foreclosure charge.
Who is eligible for rental deposit loan?
While this depends on the financier, the basics are around the same:
- The minimum monthly salary of the person asking for a rental employment loan is Rs 30,000.
- He should be either working with the government or in a private listed company.
Documents required for rental deposit loan
- Identify proof
- Employment proof
- Salary slip of three months
- Official mail id verification Mail confirmation from the official
- Bank statement of six months
- Agreement of rent
How to apply for rental deposit loan online?
- Go to the website of the bank/ NBFC whom you have chosen to avail rental deposit loan from.
- Fill name and contact details and get OTP.
- Submit OTP and fill in details.
- View the loan details and submit.
- Upload rental agreement.
- Once the rental agreement is verified, the loan will be disbursed into your bank account between 24 to 48 hours.
What are the benefits of rental deposit loan?
There are many benefits attached with rental deposit loans.
- These loans are given for even smaller amounts.
- While the tenant has to only pay the interest during the duration of the stay, the principal can be repaid once the tenant gets it from the landlord once the rental agreement tenure is over.
- Since the loan amount is generally smaller than other types of loan, the rental deposit loan is granted within 48 hours of applying for it.
- If a tenant stays in the property more than the agreed time period in the contract, he has to renew it so that extension details are submitted to the bank/NBFC and the monthly interest installments have to be paid to the financier. Alternatively, the tenant can repay the rental deposit loan and close the contract with the bank/NBFC.
- By availing the rental deposit loan, one can hold on to their savings.
- On availing the credit of this nature, one can not only manage expenses but can prevent their savings from depleting too. This is also helpful when a tenant would have other expenditures and need not block his savings on rental deposit.
Who should not avail the rental deposit loan?
People who can afford personal loans and service higher EMIs should explore that option as well and compare what works best. This is because while in a rental deposit loan, the principal is flat and interest is paid on it, in a personal loan, the principal reduces and by the end of the loan tenure, the interest is paid on the reducing principal tenure which is comparatively less.
Housing.com POV
The rental deposit loan is a hassle free loan that takes care of the deposit money that tenants have to pay without much hassle. These help in tenants getting loans of smaller values for smaller tenures- something that is helpful to them at a time when they need not block their money by dipping their savings. This is a great help for people who have relocated from other cities as they may have many overhead expenditures which they can do with this money rather than paying it as deposit and waiting for tenure to end to get it back from the landlord. However, people who can service larger EMIs should also explore other options in the market and see what works for them financially.