Deposit Rental vs. Monthly Rent: True Cost Comparison
Deposit-based rental systems (like Korea's jeonse or similar models) require a large upfront deposit instead of monthly rent. To compare fairly, you must factor in both the loan interest you pay to the bank and the opportunity cost of your own capital that's tied up in the deposit.
True Cost Formula
Deposit rental monthly cost = Loan interest + Opportunity cost of own capital
Monthly rent cost = Monthly rent + Opportunity cost of rent deposit
If the deposit rental's monthly cost is lower, it's the better financial choice. As interest rates rise, the advantage of deposit rentals narrows.
Break-Even Analysis
Break-even loan rate = Monthly rent ÷ Total deposit × 12 × 100%. If your actual loan rate is below this, deposit rental saves money. Above it, monthly rent is cheaper. This shifts dynamically with interest rate cycles.
Frequently Asked Questions
Your own capital in the deposit could earn returns elsewhere (savings account, investments). Including opportunity cost makes the comparison fair — it reflects the real financial cost of locking up capital.
A higher opportunity cost rate increases the effective cost of the deposit rental, potentially making monthly rent more attractive. Enter your expected investment return rate for a personalized comparison.
No. Real-world risks like landlord insolvency, deposit loss, or difficulty recovering the deposit are not quantified here. These risks are real and should factor into your decision separately.