Last updated: 04/09/2020 | Estimated Reading Time: 4 minutes
Loans for Young People
If you are young and have never taken out a loan in the past, but wish to borrow money, you may find it difficult to get a loan approved. There can be big investments you need to make, such as buying a car, or paying for education costs. There are however a number ways to get credit if you are young, which we will go through in this guide.
In This Guide:
- Why are loans for young people harder to get?
- Loans for Students: What Options Do I Have?
- Graduate Loans Options
- How You Can Improve Your Credit Rating
- Compare Young People Loans Online
Why are loans for young people harder to get?
Strictly speaking, your age itself does not actually affect your chances of having a loan accepted. If you have a high earning job, a good credit rating and potentially own some valuable assets (such as a house or a car), taking out a loan should be just as easy as if you are older and the conditions remained the same.
However, young people are far less likely to be in this position, as many are still in education, or doing apprenticeships, and most likely have low or no incomes. As a result, it makes lending a more risky prospect, meaning that if you do get a loan accepted, the interest rates will likely be much higher.
On top of this, you are less likely to be able to get a loan with little or no credit history. This is known as a ‘thin file’, meaning that there is not enough evidence to judge that you will pay your loan repayments on time. Although there are some lenders who are willing to give out to those with thin files, many do not and interest rates are often much higher.
Loans for Students: What Options Do I Have?
If you are at university, the best way to get cheap loans is through The Student Loans Company’s student loans. This covers your tuition fees, and part or all of your living costs depending on how much your parents earn.
Student loans are by far the easiest, and lowest interest rate ways to get a loan if you are in full time education. Currently the interest rate stands at 3% APR (Annual Percentage Rate) above inflation. Also, you don’t start paying back your loan until you hit a certain threshold, and there are no penalties to your credit history for not paying the loan back in full.
Another option if you wish to undertake a postgraduate degree, but need more money to fund it, is a career development loan. The interest on the loan is paid by the government throughout the term of your degree, but you will have to start repaying it six months after you graduate.
Graduate Loans Options
It can be hard to find credit if you have just left university but don’t have a high earning job, but one option you may be able to consider is a guarantor loan. If you have a family member who could sign as a guarantor, you will find it much easier to get a loan with lower interest rates. This is because the guarantor secures the loan, so if you are unable to pay back the repayments, the guarantor will become liable to paying it back.
Another option is to use your overdraft. Most graduate bank accounts have a zero percent interest rate on overdrafts for a year, which means it essentially acts as an interest free loan. However, the interest rates can spike quickly if you are still using your overdraft when this time runs out, so make sure that you pay it back quickly.
How You Can Improve Your Credit Rating
In order to improve your credit rating to make it easier to take out loans in the future, there are some easy steps you can take to boost it quickly. Although it may seem strange, registering to vote can improve your credit score, as it helps to confirm your name and address. You should also ensure that you pay all of your bills and debts that you have on time.
It is also important not to take out too many loans in a short space of time. Lenders are wary of people who ask for too much credit, so be sure to spread out the loans that you apply for.
Compare Young People Loans Online
You can check to see what loans that you may be eligible for by using an online ‘soft’ search to compare loans online. All you have to do is give some key details such as your age, employment details and credit score, and you will be able to view potential loan options that you could get accepted for.
A ‘soft’ search does not affect your credit score, making it a good way to gauge the market to see if it would be financially worth taking out a loan for your current situation.