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Research by Hamilton Fraser鈥檚 deposit alternative scheme Ome, has looked at the real cost of a tenancy deposit for those that have to borrow the money in order to overcome the initial financial hurdle of renting.

For many, the average tenant deposit cost of 拢1,299 is manageable but the issue is the requirement to pay the full sum upfront, leading many to turn to family for a loan. But for many more, this isn鈥檛 a possibility and so they are forced to borrow the money from a lender and stomach the additional interest on top of the deposit itself.

Ome looked at the additional costs of a credit card, personal loan and payday loan and found that the interest ranged between 拢44 to 拢2,794 depending on rate and credit score over a year long term.

Credit card

Using a credit card with a low rate of interest is the most cost-effective way to borrow a rental deposit and at an average rate of 6.4% it would set you back 拢112 a month to pay back over 12 months, with 拢44 in interest.

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

Personal loan

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

An average credit score would cost you 拢118 a month at a rate of 16.7% paying 拢112 in interest, but a poor credit score would cost around 拢122 a month, paying 拢163 in interest. For those with medium to poor credit scores, a credit card, while still fairly expensive, would see you pay less interest in the long run.

Payday loans

Notorious for their high rates of interest and by far the worst route to go down when borrowing a tenancy deposit but unfortunately the only route for some. Borrowing 拢1,299 and paying it back over the course of a year would see you hit with a rate of 292%, paying a hefty 拢341 a month and a huge lump of interest at 拢2,784.听

Co-founder of Ome, Matthew Hooker, commented:

鈥淔or 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.鈥�