How to get a loan as a young person
Need a loan for a new car or to fund your studies? See how young people can improve their chances of getting a loan and the alternatives
Key takeaways
Loans are generally accessible to those over 18 (some lenders may set the minimum age at 21)
Be aware of potential charges if paying off the loan ahead of schedule
By age 21, many younger, would-be borrowers have established a credit history, making loan options more available
What criteria apply when a young person applies for a loan?
In the UK, personal loans are generally accessible to those over 18, although some lenders may set the minimum age at 21 or 25/
When you apply for a loan, the provider will check your credit rating to assess your history with financial commitments. They'll also evaluate your job status and income to ensure you can manage the loan repayments.
Borrowers must also be UK residents and have a reliable income to cover the repayments. You’ll also have to be at least 18 to apply for other forms of credit, such as a credit card.
What do you need to consider if you’re taking out a loan as a young person?
When contemplating a loan, young borrowers should be mindful of several factors:
Higher interest rates/APR may be applied due to perceived risk
Loan amounts offered might be lower than those available to older borrowers
Understanding the loan terms is crucial to avoid any surprises
The impact on credit scores cannot be overstated; borrowing responsibly is key
Taking out a loan may limit further borrowing until it's repaid
Effective financial planning is essential to ensure loan repayments are manageable
How can a young person improve their chances of getting a loan?
To enhance the likelihood of loan approval and your eligibility for other forms of credit, it's advisable to check your credit file before applying.
MoneySuperMarket's free credit score allows you to view your credit score and file at no cost. A higher credit score can lead to better interest rates and a greater chance of approval.
There are several steps you can take to improve your credit score, such as registering on the electoral roll, correcting any mistakes on your credit file, paying bills on time, and avoiding maxing out credit lines.
Why is it harder for young people to take out loans?
Young individuals may find it more challenging to borrow money due to a limited credit history, a career that is just beginning, and statistical data that may categorise them as higher risk.
However, as young people grow older and, assuming they manage their finances responsibly, their credit rating improves and it becomes easier to obtain loans.
This trend continues until they approach retirement age, at which point borrowing can become more difficult again.
Is it easier to secure a loan once you reach 21?
By the age of 21, many young adults have had the opportunity to establish a credit history and may have a broader selection of loan options available to them. This can make it easier to secure a loan compared to younger borrowers.
Are loans for 18-year-olds and younger legal?
Loans are not available to individuals under 18 in the UK due to legal restrictions on entering into financial contracts.
Can a young person with bad credit get a loan?
Securing a loan with bad credit can be challenging, but it's not impossible. There are specialist loan products designed for those with less-than-ideal credit histories.
However, these products often come with higher interest rates and smaller loan amounts. It's important to carefully consider the implications of taking on a new loan if there have been past issues with debt.
What can you use a young person’s loan for?
Once a loan is approved, the funds can be used for virtually any purpose. Most loans for young people will be unsecured personal loans, which means they don't require collateral to borrow money.
However, it's wise to borrow with a clear goal in mind. Some common reasons for taking out a loan include:
Clearing an existing overdraft to avoid high bank fees.
Purchasing a vehicle to enable reliable transportation to work or school.
Covering a rental deposit, which can be a substantial upfront cost.
How do loans for young people work?
Personal loans involve repaying the principal amount along with interest over a predetermined period. Typical loan terms for personal loans can vary, but they often range from three to seven years.
Most personal loans offer fixed rates of interest, ensuring that monthly repayments remain consistent, which is helpful for budgeting. You can use a loans calculator to estimate the cost of a loan at different interest rates.
Unlike secured loans, personal loans are a form of unsecured borrowing that don't require you to risk any valuable assets. However, it's important to be aware that many personal loans come with early repayment charges , which can be a factor if you plan to pay off your loan ahead of schedule.
How do you pay off a loan when you get one?
Upon receiving a loan, you'll be given detailed repayment information, including the amount of fixed monthly payments and the total number of payments required.
Setting up a direct debit is often recommended to ensure payments are made on time and to avoid penalties.
Payments are typically scheduled to coincide with your payday, making it easier to manage your finances.
After making the final payment, the loan is considered cleared, although making early repayments or overpayments is possible but may incur additional charges.
What are the pros and cons of taking out a loan as a young person?
Advantages
Immediate access to cash for important purchases or investments
Opportunity to build a credit history, which can lead to better borrowing terms in the future
Disadvantages
Commitment to long-term repayments, which can strain future budgets
Potential for early repayment charges if the loan is settled ahead of schedule
Risk of damaging credit score if repayments are not made on time
What are the alternatives to a loan?
For young people, there may be borrowing options that are more suitable than a standard personal loan:
A credit builder credit card can be a good starting point for those with little or no credit history
An overdraft can provide a flexible borrowing option, sometimes even interest-free
Car finance options are worth exploring for those looking to purchase a vehicle
Student finance offers loans for eligible courses of study
A postgraduate master’s loan can support those pursuing a master's degree
A guarantor loan involves a family member agreeing to cover payments if necessary
Borrowing from loved ones can be a low or no-interest option
Other useful guides
Compare loans for young people with MoneySuperMarket
Finding the right loan is straightforward with MoneySuperMarket. Our eligibility checker tool can show you the likelihood of acceptance without impacting your credit score.
As a credit broker, MoneySuperMarket is compensated by lenders, not customers, ensuring that our services are free for you to use.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
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Victoria Russell
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