How do I get a loan as a young person?

Key takeaways

• In the UK loans are generally for those aged over 18 (some lenders set the minimum age at 21).

• There may be charges if you pay off the loan ahead of schedule.

• The types of loans available to younger people will depend on their credit history, income and financial situation.

Can a young person apply for a loan?

Young adults can apply for loans if they have a UK bank account and meet the other eligiblity requirements set out by a lender.

In the UK, personal loans are generally accessible to those aged 18 and older, although some lenders set the minimum age at 21 or 25.

When you apply for a loan, the provider will check your credit report to assess your history with financial commitments. They'll also look at 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 or car finance agreement.

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

• You must be able to show you can afford to make the monthly payments comfortably

• 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 important to check your credit file before applying. Young borrowers often have a limited credit history so building this will also help.

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.

You can also use a free eligibility tool, which will show you how likely it is that you will be approved for a loan, by carrying out a soft search on your credit file. This doesn’t have any impact on your credit score.

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 not using too much of the credit available to you.

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 their credit history and may have a broader selection of loan options available to them. They may have been paying regular bills, such as for a mobile phone contract or a credit card, over this time which can help to build their credit history.

This can make it easier to secure a loan compared to younger borrowers.

Can a young person with bad credit get a loan?

Securing a loan with bad credit can be challenging for any age, but it's not impossible. There are specialist loan products and lenders designed for those with poor 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

• Paying for tuition fees at university

• 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 set period, usually via direct debit. 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 payments remain consistent, which is helpful for budgeting. You may be able to pay the loan off early, but watch out for fees if you do this. 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.

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 and improve credit rating, if you keep up with the repayments 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 or there are missed payments

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

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, which 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.