Security deposit

Definition

A security deposit is a sum of money paid upfront to protect the lessor against potential damages or non-payment. It is typically refundable if the terms of the lease are met.

5 Must Know Facts For Your Next Test

1. A security deposit is usually required when leasing a car.
2. The amount of the security deposit can vary but is often equivalent to one month's lease payment.
3. If there are damages beyond normal wear and tear, repair costs may be deducted from the security deposit.
4. Failure to return the car at the end of the lease in acceptable condition can result in losing part or all of the security deposit.
5. Security deposits are different from down payments, as they are generally refundable.

Review Questions

• What happens to a security deposit if there are damages to a leased car?
• Is a security deposit typically refundable?
• How does a security deposit differ from a down payment when leasing a car?

Related terms

Lease Agreement: A contract outlining terms and conditions for leasing an asset, such as a car.

Down Payment: An initial upfront portion of the total amount due, often non-refundable.

Wear and Tear: The expected decline in condition of an asset over time due to regular use.