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A Rental Deposit Loan is an amount borrowed from a financial institution to pay off the security advance of rented accommodation. Landlords in metropolitan cities ask for a deposit equivalent to six months to one year’s rent before letting their houses out. So, even as you move cities for better job opportunities, your savings take a knock while renting an apartment. Typically, a sum of Rs 1-3 lakh gets blocked in security deposits.
The loan amount may vary from Rs 1 lakh to up to Rs 5 lakh at an interest rate of 1.5 % to three %, and the tenure of the loan would differ as per the rent agreement such as 11, 22 and 33 months. For instance, if you borrow Rs 2 lakh at 1.5 % interest for 11 months, the monthly interest will be Rs 3,000, and the total interest for 11 months will be Rs 33,000.
Now, fintech companies such as LoanTap, Paymatrix and Cashe and non-banking financial company (NBFC) Bajaj Finserv offer loans for rental deposit. There are mild variations in their product offerings, but the end-purpose is to lend for rental deposit.
On availing the credit of this nature, one can not only manage the expenses, but can save their savings from depleting, too. When relocating to a new city, liquid fund is utmost necessary to cater other essential expenses varying from appliances, furniture and groceries; therefore, paying off the security advance via rental deposit is the most effective solution to escape the financial burden.
Moreover, such loans might help in settling down in your dream house or a locality closer to your workplace. Overall, the rental deposit is a flexible, no-EMI loan that effectively caters to the fiscal requirements of modern day tenants.
The eligibility criteria vary across lending institutions. Some of the things to which make one eligible to get a rental deposit loan include-
While borrowing from LoanTap or Paymatrix, the loan amount sanctioned is between Rs 1 lakh to Rs 5 lakh. An individual working for a public limited/private company or in a government job with monthly take home salary of more than Rs 30,000 is eligible for this loan. The tenure of this loan is 11-33 months it should match the duration of the rental agreement. The interest rate charged per month is a flat 1.5 % (i.e., 18 % per annum).
Processing charges vary from lender to lender, and are usually in the range of 2-5 %. The borrower also has the choice to pre-close the loan after six months. However, if the loan is closed within six months of disbursal, a minimal foreclosure charge is applicable. Besides, the borrower can also choose to make higher repayments after six months.
Throughout the tenure of the loan, if the interest is 1.5 % (flat interest rate), you will only pay Rs 1,500 per month for Rs 1 lakh. In rental deposit loans, though the monthly payout is lower, the overall interest outflow is higher because the borrower is only servicing the interest component at a flat rate. The principal amount stays constant and is repaid at the end of tenure as a bullet payment.
In a conventional personal loan scheme, the interest charge is on the reducing principal balance. So, you pay lower interest at the end of tenure compared to what you pay for a rental deposit loan.
There are no foreclosure charges after six months of the loan tenure. But, fintech companies such as LoanTap and Paymatrix are charge upto 4 % as foreclosing charges on the entire principal amount from the borrower if full repayment is done before six months. The foreclosure charges here may turn out be more compared to what is paid to foreclose a personal loan, since in the case of personal loans, 3-4 % charges are applied on the outstanding principal amount, which reduces with each EMI payment.
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