If you have funds set aside for the first-and-last-month deposit, you can use that money toward rent. But if you don’t and you need to move quickly, what are your options? Traditionally people borrow from friends or family, use a credit card, or tap a line of credit. A newer option is taking a small loan specifically to cover a rental deposit from a bank or a financial company.
Why are people considering loans for rent? Rents across Canada have continued to rise. According to a recent national rental report, the average monthly rent is about $2,117, representing a roughly 9.6% year-over-year increase and a 1.8% rise since July. In competitive markets like Toronto, the upfront first-and-last deposit can be substantial — commonly reported figures put one-bedroom deposits around $5,184 and two-bedroom deposits near $6,740 — which makes paying those initial costs difficult for many renters.
How do bank and rental-deposit loans work?
One familiar option is a short-term personal loan, typically repaid within two years. Lenders offer short-term loans in a range of amounts that can cover emergency costs such as medical bills or car repairs. While some short-term loans carry reasonable interest rates through conventional lenders, other short-term products—such as payday loans—come with very high interest rates, sometimes reaching 50% or more, and can trap borrowers in a cycle of debt.
A more recent option is a tailored rental-deposit loan. For example, an Ontario firm launched a rental-deposit product in 2023 that targets renters who need funds for first and last month’s rent. The company advertises annual percentage rates starting around 6.99% for qualified applicants. Approval typically depends on a combination of a conventional credit score and a proprietary tenant-focused score that factors in employment history, missed or late rental payments, debt-to-income ratio and other indicators of tenant reliability. If approved, the loan is structured for a short term—commonly three to nine months—and the funds are paid directly to the landlord in place of the required deposit.
Companies offering these products say their goal is to help renters who must relocate quickly for work, family, health or education and who do not have sufficient savings for the deposit. They argue that a short-term loan can relieve immediate cash pressure and preserve emergency savings. Still, most experts stress that using your own savings is usually the safest choice and that loans should be a last resort.
Should you borrow to cover first and last month’s rent?
Financial advisors advise caution. Elke Rubach, CEO of Rubach Wealth, recommends using savings first and treating a loan for rent as a last option after exploring alternatives such as borrowing from family or drawing from a line of credit. If you do borrow, build the loan payments into your budget and ensure you have a realistic repayment plan.
Darryl Brown, a chartered financial analyst and investment planner, notes that borrowing to cover rent is not new—people have long used credit cards and lines of credit for this purpose. Rental-deposit loans are simply another tool. When used responsibly, these loans can be helpful for renters who must move quickly, but borrowers must read the terms closely, understand the interest rate and repayment schedule, and be aware of any clauses that could change payments or penalties for missed payments.
All loans carry risk. Falling behind on repayments can damage credit and introduce new financial stress. Some rental loan providers use tenant-focused scoring to assess applications and may lower a borrower’s tenant score in the event of defaults. These companies typically do not intervene in landlord-tenant disputes or eviction processes, so borrowers remain responsible for resolving any contract issues with their landlords.
Rental loans versus credit cards and lines of credit
Other ways to cover a deposit include a personal line of credit, which may have rates up to roughly 10%, or credit cards, which commonly start at higher annual rates (for example, around 20.99% APR for some cards). A rental-deposit product that advertises a low starting rate may not qualify all applicants for that rate; eligibility depends on creditworthiness and other underwriting factors.
There are circumstances in which a high-cost option may be the only practical choice—for example, if someone must leave an unsafe situation immediately—and in those cases speed and safety may override cost considerations. Still, for routine moves, advisors emphasize choosing a place you can afford and avoiding loans that push your monthly housing costs beyond what your budget can sustain.
Before signing any loan agreement, examine the fine print: repayment timeline, fees, what happens in case of missed payments, how defaults affect future housing eligibility, and whether the lender reports to credit bureaus or tenant-scoring services. If your financial model shows you cannot reasonably afford the loan repayments in addition to monthly rent and other expenses, the safest course is to decline the loan and explore other housing or financial options.
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