Loans for young people

Loans for students and graduates

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Most of us find ourselves strapped for cash as a student or when we start our first job.

Young male student studying in a cafe

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If you need to take out a loan to make ends meet, you'll want to know how to do it, and how to make sure to pick the one most suitable for you, at the best rate.

Here, we look at how to take out your first loan.

Loans for young people

There are various options when it comes to choosing a loan. As a student, the loan with the lowest interest rate will be a student loan, which is repayable once you start working.

Aside from this, there are personal loans available from a variety of lenders. However, before picking one, consider how much you really need to borrow and what repayments you can afford to make each month. After all, it's vital that you don't overstretch your finances.

You might, for example, want a loan to buy your first car, or fund a course. According to MoneySuperMarket data collected between January and October of 2018, 39% of young people enquiring about a loan are doing so to help fund the purchase of a car.

By taking a loan from a bank, you'll pay back the amount you've borrowed – the capital – plus interest on the capital sum. If you don't stick to the repayment plan, you'll face charges, so make sure you can meet the cost.

Reasons young people take out loans

MoneySuperMarket data collected between January and October 2018.

Remember that the higher the interest rate, the longer it will take you to repay the loan, and the more it will cost you.

Loans for those with a low credit rating

There is a difference between 'poor credit' and 'no credit'. However, they both make getting loans with the lowest rates tricky.

If you have no credit history behind you, because you have never taken out a loan or any form of credit before, you may struggle to get a loan. Find out more about what affects your credit rating.

However, having a non-existent credit score, also known as a ‘thin file’, doesn’t necessarily mean that lenders will automatically slam the door on you. But it might mean your options are limited.

Those with a thin credit file are likely to face higher interest payments, and access to smaller loans. The best deals are reserved for borrowers with sparkling credit histories and a history of making reliable repayments.

Lenders who are willing to give loans to those with a non-existent credit rating will usually do so with higher rates and lower limits, as they are more likely to view you as a greater lending risk.

Remember that the higher the interest the longer it will take you to repay the loan, and the more it will cost you.

Average loan of people aged 18 – 24

MoneySuperMarket data collected between January and October 2018.

How young people can improve their credit rating

There are simple ways to improve your credit score. These include making sure your name is on the electoral roll, so get registered with your local authority. If you’re not on this, you're unlikely to get any credit.

Also, space out your applications for credit as each will leave a 'footprint' on your file. If you have a lot of ‘footprints’ in a short space of time, it makes the next lender less likely to accept you. When you do get credit, make sure you keep up repayments to gradually build up a credit history.

Don't despair - remember that your credit history isn't the only consideration when providers decide to lend you money. They also take into account your job, salary and perhaps any other assets you might have.

Compare loans for young people, alongside your likelihood of getting approved by using MoneySuperMarket’s Eligibility Checker.

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