Loans for 18 year olds

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Before taking out any loan it is necessary to weigh up the advantages and disadvantages before reaching an educated decision. This means that we would always advise an 18 year old to pay for goods or services upfront where possible. However, if that proves impractical it is possible for 18 year olds to take out some sort of loan. In fact, certain loans are tailor-made for the needs of 18-year-olds and can vastly improve your future financial standing. Some examples of these are student loans, which are low in interest and could vastly improve your long term earning potential or a Prince’s Trust loan which is tailor-made for 18-year-olds and may prove to be tremendously beneficial to both the short term and long term financial future of young people.

Why is it harder for an 18-year-old to get a loan?

Usually, this is because 18 year olds have little or no credit history. This makes it incredibly difficult for a lender to ascertain how reliable an individual is as a borrower and causes reluctance to offer them loans, particularly at more competitive rates.

What is a credit history?

A credit history is a record of an individual’s financial past and demonstrates to a lender or supplier the applicants reliability in repaying debts. It includes:

  • The number and types of credit accounts
  • How long each account has been opened
  • The amounts owed
  • Whether bills have been paid on time
  • The number of credit enquiries recently proposed

Naturally, most 18 years old would have been financially dependant on their parents and therefore won’t have left much of a financial footprint. This makes it difficult for them to have any form of credit history and to demonstrate their viability as candidates for a loan.

Why would an 18 year old need to take out a loan?

Further education: Whilst a High School education is free according to law, gaining access to further education (i.e University, Masters) is not. This means many 18 year olds may well need to take out a loan to gain access to further education.

Business loans: An 18 year old may want to take out a business loan to help them start a new venture or start their journey as an entrepreneur.

Car loans: Many 18 year olds may wish to buy a car so that they have some level of independence. However, without a loan this may prove impossible.

Travel: A number of 18 year olds wish to take some form of gap year after school, but may lack the funds required to do so, a loan may be helpful in assisting with this dream.

Should an 18 year old take out a loan?

Whether an 18 year old takes out a loan very much depends on individual circumstances. In that respect, any loan taken out must be carefully considered. In general, at an age when income and future employment are rather uncertain, a loan can be a slightly risky option. That being said, if you do feel you need some additional funds and you have done some careful planning there is no reason you shouldn’t apply for a loan, although it is important to consider the different types of loan and the advantages and disadvantages of the different types.

What loans are available to an 18 year old?

Student loans: Student loans are custom made for the needs of 18 year olds who may be attending University, but unable to afford the fees associated with this which include tuition fees as well as maintenance. You only start paying back this loan once you are in full time employment and earning over £21,000 per year.

Career development loans: A career development loan helps individuals looking to carry on their education with a postgraduate degree, and will help pay living expenses during the course. However, borrowers will have to start paying this back with interest, within a month of the course ending.

The Prince’s Trust business loan: If you are under the age of 30 and have an idea for a business, you may be eligible for a Prince’s Trust loan which, as well as offering mentoring and guidance, will also offer a very low-interest rate on a loan of £7,500.

Speak to your bank: An 18 year old may also find it possible to get a loan from their bank. This simply requires going into a branch and speaking to a representative and explaining the circumstances honestly and clearly.

Find a guarantor: You might consider asking your parents, a friend or relative to be your guarantor, making it easier for you to borrow larger sums, spread over a longer period of time. A guarantor is responsible for the financial obligations of the loan which means that if you are unable to repay the sum of money, your guarantor would need to make the repayments. Understandably, this is quite a significant ask of an individual and could potentially ruin a relationship if you are unable to repay. We would therefore recommend seriously considering whether you feel you can repay the loan and, if, it could be potentially damaging to an important relationship.

“Credit builder” credit cards: These are specifically designed to help borrowers build a credit history and grow their credit limit. Whilst your initial credit limit might start low it can be reviewed and increased in a short period – even in four months.

Tips to make it easier to borrow money as an 18 year old:

  1. Savings history: a solid savings history, which could either be in the form of a savings account or a credit card with repayments, could show to a lender that you are a reliable and responsible borrower.
  2. Emergency fund: If as an 18 year old, you feel the need to take out a loan, it is important that you look to create an emergency fund to ensure you are able to repay the loan, and also don’t feel the need to take out an emergency loan in the future.
  3. A clear plan: Having a clear financial strategy, both in the short and long term, to demonstrate why you need the loan and what you are using it for will help demonstrate that you have thought logically and carefully about your loan and mean a guarantor, or in fact, a bank is far more likely to aid you.
  4. Smaller amounts: opting for smaller amounts should make it easier to get your loan accepted.
  5. Electoral Roll: making sure that you are registered, a relatively simple task, can help improve your credit score. This is because it demonstrates to a lender that you are who you say you are and that the details you have provided are wholly accurate.
  6. An employer letter: a letter from your employer can help demonstrate you have some level of security.
  7. Deposit: if you are looking to gain a loan for something like a car, a deposit will help demonstrate that you are in a strong financial position.

What are the benefits of getting a loan at 18 years old?

Funds: A loan, at any age, will help you gain access to funds helping you to make the purchase you wanted.

Credit building: If you pay back the loan on time you can build up your credit score.

Education: A loan may help an 18 year old gain access to better education and further their opportunities in the long term.

Independence: Gaining additional funds will allow an 18 year old to gain far more independence and mean you can make your own decisions even at this early age.

Opportunity: It could be that an 18 year old has a fantastic opportunity to invest in a business or start their own venture and gaining a loan could help them realise this fantastic opportunity.

What are the drawbacks of getting a loan at 18 years old?

Limited loan amounts: At such a young age you may struggle to get the amount you want.

High interest rates: As 18-year-olds are considered higher risk, they may face higher interest rates.

In summary, there is no reason why an 18 year old can’t take out a loan, particularly those such as student loans which really are custom made for their needs. However that being said, it is important that an 18 year old, similar to any individual looking to take out a loan fully considers the advantages and disadvantages and is able to repay the loan.

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