Whether you need extra financing for your studies or trip abroad, getting a loan when you're younger can be difficult. Our guide explains ways to borrow loans for young people.
Young people can struggle to borrow partly because they could be seen as more of a risk or do not yet have a steady income, but also because they often don't have much experience in paying back debt yet.
Of course, for young people who have experience with credit cards and paying back debts, and have a regular income, getting a loan is not much of a worry. However, the loans market does tend to make it harder for young people.
Whether you need extra financing for your studies or a trip abroad, getting a loan when you're younger can be difficult, but it's not impossible.
Just like trying to get a loan when you're, say, over 60, getting one when you're under 25 can be difficult too. There are prime ages for borrowing, based on various risk factors associated with age. Broadly speaking, the older you are, the less time you might have left to fully pay back the debt before you die. The younger you are, the less experience you have in paying debts or having a regular income.
Many young people will have a very poor credit score purely because they have never taken out any kind of loan before.
Getting a loan when you're younger might be harder, but there are ways to improve your chances of being approved by lenders. The main thing is to look for ways to minimise the appearance of risk.
Nearly all lenders restrict applications to people over the age of 18, and some will only accept applicants who are over 21.
However, even if you are 18, it is likely that your loan will be your first experience of debt (student loans only start getting repaid while you're working, so they wouldn't count towards your credit history yet). This would restrict your choices and make it harder to get approved.
If you're working and aged 18, then you may not have been working for long, which would add to your perceived risk level. Lenders prefer people who have been in their job for at least a year, as it gives the impression of stability and someone who can be relied upon to pay the bills every month.
Being over the age limit to get a credit card does not mean that it's easy if you're somewhere between 18 and 25 years old. Age becomes less of a factor in applications as you get older, until you get 'too old' around over 60.
If you need a loan to help further your career by studying, then there are many options on the market. Many lenders have loans tailored to people who have finished their main studies and are looking to pay for further education.
These are usually called student and career development loans. They usually allow you to pay for your studies and repay the debt after you have graduated.
The interest rates are generally higher than the leading unsecured loan rates, but they often have more flexible terms, designed to help young people find a better way of paying it back.
Your application might also require you to prove how you plan to pay back the loan, and how the loan will help improve your financial situation via your career's development.
Guarantor loans are designed for people with poor credit scores, and young people are often included in that category. They allow a friend or family member to guarantee the loan you apply for.
If you fail to keep up with repayments, your guarantor (the friend or family member) will be held responsible. They will need to have a good credit score and be deemed reliable enough to pay back the loan should you fail to do so.
Many young people ask their parents to be guarantors to help get approval. However, guarantor loans often have very high rates of interest, so do your research.
If you are a young person and have never had a credit card, and likely have never paid any household utility bills in your name, then there's a good chance that you have a very poor credit score.
Credit scores are based on your history of financial interactions. If you have paid back debts, including household utility bills, and have not missed payments, then you should have a good credit score.
Young people are also less likely to have a fixed residence. If you are regularly moving between student housing and your parents' then this could be another barrier to improving your credit score. Lenders want to see a fixed address that has the tenant registered on the electoral roll.
By registering to vote you confirm that the address you live in and put on the application is your permanent home.
Loan providers check your credit score to determine how much of a risk it might be to lend to you. The higher your score, the better your chances are of being approved, but for many young people a lower score is almost inevitable.
You should check your credit report to see what is holding back your score and what you can do to improve it.
Firstly, you can start by registering on the electoral roll at your address where you plan to apply for a loan. Secondly, if your landlord includes your bills in the rent, ask if they can put your name down on some of the bills.
Household utility bill payments on a contract appear on credit reports. You could be paying those bills all the time but it might be your landlord's name on the bills, so it would make no difference to your credit score.
You can also build up your credit score by paying back any other debts, including a mobile phone contract or a credit card.
Credit cards are a flexible way of borrowing, but obviously you would not be able to get the amount of money you could get from a loan.
Many banks offer credit cards specifically for students, usually with a higher rate of interest, but they will be more understanding of a young person's circumstances.
There are also credit cards designed for people with bad credit. They are also known as credit builder credit cards, primarily because many young people take them out to help improve their credit score.
You can also speak to your bank about extending your overdraft and giving you more favourable conditions. Overdrafts can be expensive and restrictive, forcing you to pay back the money within just a few days. However, if you speak to your bank first, they might be able to make a special arrangement for you.
Some banks offer student overdrafts while you're studying, and you would only pay interest once you graduate. The interest can be expensive, so make sure you have plans in place to pay it back before the 0% interest deal ends.