According to the American Bar Association, a security deposit is defined as “money to protect the landlord in case the tenant damages the property or fails to pay rent.” When you rent or lease an apartment, the landlord can ask for a security deposit before you move in. Depending on where you live and local landlord-tenant laws, this can be capped at one to two months’ rent. Security deposits give landlords a measure of financial reassurance in the event that you break the lease, have to be evicted, or damage the property. If your lease contract allows it, the landlord can keep your deposit to cover any financial losses or damage they incur as a result of your actions. Renting a place to live isn’t the only time you might be asked to pay a security deposit, however. You may also have to pay a security deposit for:
Secured credit cardsCellphone servicesCable TV and internet servicesUtility servicesTuition and other higher-education expensesCar rentalsVacation rentalsMoving-truck rentals
Whether you’re required to pay a security deposit in any of these situations can depend on the company’s policies as well as your credit score. Company policy can also dictate when a security deposit may or may not be returned to you.
How a Security Deposit Works
A security deposit is usually required to be paid before access to property or services is provided. So if you’re moving into a new apartment, for example, you may need to pay the security deposit in full when you sign the lease. Or if you’re heading off to college, a tuition deposit may be due before classes start. Security deposits for rental agreements are typically covered by landlord-tenant laws at the state and/or local level. These laws can dictate:
How much a landlord is allowed to charge for a security depositWhen security deposits must be paidWhere this money must be heldUnder what circumstances a security deposit can be returned and the time frame for doing soWhen a landlord can keep a tenant’s security deposit
For example, if you move out of an apartment and leave behind stained carpets or damaged fixtures, your landlord may be able to keep some or all of your security deposit to pay for cleaning and repairs. Or if you break the lease and move out early, you may forfeit your deposit to cover any remaining rent payments due. Landlord-tenant laws can also specify what resources you have as a renter to reclaim your deposit. For instance, you may be able to file a civil lawsuit in small claims court if you believe your landlord is holding back your deposit unlawfully. Security deposits also can be used to recoup financial losses in other situations. If you stop paying your electric bill or cellphone bill, for example, your service provider can apply the deposit to your balance. Or if you rent a car or moving van and damage it, the security deposit may be used to pay for repairs.
Do I Need to Pay a Security Deposit?
In most cases, if you’re renting an apartment or another place to live, the landlord will ask for a security deposit. However, it’s possible you may be able to negotiate an alternative agreement if you don’t have the money to pay a large deposit upfront. For example, you may be able to spread the deposit out over the first three months of your lease term. Whether you need to pay a security deposit for utility and cellphone services, a vacation rental, or a moving truck or car rental can depend on the service provider and your credit score. If you previously had service with a utility company, for example, they may waive a security deposit if you always paid on time in the past. You may need to provide a letter of credit to have a security deposit waived in this way. A security deposit is usually part of opening a secured credit card account. These cards require a cash deposit for opening, which typically serves as your credit limit. Secured credit cards can be useful for establishing or rebuilding credit by paying on time and keeping your balances low. Depending on the card, the deposit may be refundable.
