Tenants who have to borrow money in order to put down a rental deposit could add up to £2,794 in interest to the cost.

If a tenant has to resort to a payday loan, that could be the cost of interest in repaying the average £1,299 deposit over the course of a year, with monthly repayments at £341 – on top of the rent.

While an extreme example, insurance firm Hamilton Fraser says some tenants have no option other than to go down the payday loan route.

The firm has recently launched a new tenancy deposit replacement product, Ome.

It says that cashflow, rather than affordability, is the real problem for a number of tenants having to find deposit money.

While some will borrow the money off family or friends, others will have to borrow from a commercial lender and pay interest on top of the deposit.

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% would mean monthly payments of £112 spread over a year plus £44 interest.

A credit card with a medium rate of interest, at 18.9%, would come in at £119 a month plus £126 interest; while a card with a higher rate of 36.3% would cost £128 per month in repayments over a year plus £231 in interest.

Personal loans are another route, with overall amounts repayable heavily reliant on someone’s credit rating.

An average credit rating could add £112 in interest, but a poor one could add £163.

Matthew Hooker, co-founder of Ome, said: “For many tenants, the financial hurdle of a deposit is more of a cashflow 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.”

Tenancy deposit replacements are typically much cheaper than traditional deposits in terms of upfront costs, but are non-refundable.

Ome has yet to release details of its costs and is currently inviting email requests for further information on its website.