This post originally appeared on Quora. Check it out here: “What is the Difference Between a Surety Bond and Security Deposit?”
Put simply, a surety bond is an alternative to a security deposit. Here’s what you need to know.
Surety Bond Vs Security Deposit
Let's say you are renting an apartment and your landlord gives you the following options for payment before you can move in:
- $1,000 security deposit
- $1,000 surety bond
A security deposit is a set-amount of money ($1,000) that you pay the landlord before you move in. This set-amount of money ($1,000) serves to protect the landlord if you violate terms of the lease, trash the property, etc. If the security deposit is refundable, you could get it back (all the way up to $1,000) once you move out as long as the rental is undamaged and you have paid all your rent, etc.
A surety bond is a three-party agreement that binds you, a surety company, and your landlord together. Basically, getting a surety bond is kind of like having a surety company co-sign for you. Generally, you'll pay 1-4% of the total bond amount (so $100-$400). If you violate the terms of the lease, trash the rental, etc, then your landlord can make a claim against your bond. If the claim is determined to be valid, the surety company will pay your landlord (up to $1,000). Then the surety company will come to you for re-payment for whatever they paid your landlord.
One important difference is that with a security deposit, you can get the money back (up to the full $1,000 or whatever the amount is). With a surety bond, you cannot get back the money you paid for it (the $100-$400). That money is non-refundable. And, if your landlord makes a claim against your bond, you might be forced to pay the total bond amount.
Both are forms of protection for your landlord, but one might cost you more money in the end.
Which One Do I Choose?
Surety bonds and security deposits accomplish the same thing, but there are drawbacks you need to weigh.
Still need more help? Check out this resource.
Are You a Landlord or Property Manager?
As a landlord, if prospective renters do not have the required security deposit, a surety bond might be a viable option.
Similar evaluation of the costs/benefits must be weighed. In most cases, a surety bond has more benefits than drawbacks:
- Prompt payment
- Less burden on you, the property manager
- Help you fill vacancies faster
Want more benefits? Here’s a great resource on 7 Advantages to Surety Bonds.
Need a Surety Bond?
Ready to get a surety bond? Would you like a free quote to see what you would pay? Use our interactive surety bond application and tell us what you need.
Please note that we do not write these bonds often. This is because this type of surety bond is not a true obligation (for example, a government or licensing agency is not requiring this bond from you). That doesn't mean it can't happen, though! Apply above and let us help you.