It is very common for young people to need to borrow money in the form of a loan. If you are looking to buy a car or pay for some training for a job, you may require a loan. It can be very stressful to take out a loan, and there are lots of horror stories surrounding taking out a loan. However young people should not shy away from taking out a loan.
When it comes to spreading the cost of the bigger purchases that are essential, these loans really can be your saving grace. This article will explore loans for young people. Read on for more information!
What Loans Can Young People Take Out?
Personal loans are available to those over the age of 18. Some loans are not available for young people under the age of 21. For certain loans you are only eligible if you are over the age of 21.When it comes to taking out a loan, the bank or loan provider will carry out some checks on you to ensure that you are eligible to take out a loan.
This will include credit rating checks to ensure that you are reliable in terms of paying back any repayments on time. They will also have a look at your income in order to ensure that you are able to afford the repayments.
How Do Loans Work For Young People?
When it comes to taking out a loan as a young person, there is not any real difference from taking out a standard loan. You will take out a loan for a certain amount and be required to pay this amount of money back, with interest. You will be required to pay this back over a set period of time in most situations. This will all be explained to you when you take out the loan, so ensure that you understand all of the terms before accepting it.
In most cases, the typical length of time that it takes to pay back the loan ranges from three years to seven years. Sometimes it is longer than this and sometimes it is shorter. In most cases, you will be expected to pay back a fixed amount of money each month that will be laid out when you take out the loan.
This will allow you to budget your money when necessary. ,In order to find out how much money you will be required to take out you can use a loans calculator.
Why Is It Difficult For Young People To Take Out Loans?
It is very difficult for young people to get approved for loans. This is the case for a few different reasons.
Lack Of Credit History
Lack of credit history is the main reason that it is difficult for young people to get loans. If you have never borrowed money before then you will not have any credit history. This will mean that the provider will not know whether they can trust that you are able to pay the money back. While this doesn’t mean that you will have a bad credit score, it does mean that you don’t have any credit history for the provider to check.
This is known as a ‘thin credit file’. In many cases, this will mean that you are rejected for the loan, or that you will be given a loan with a much higher interest rate than other loans. This can make it very unaffordable for young people to get a loan. If you don’t have any detailed credit history then you may also find that you are offered a smaller loan. As a young person you will likely find it easier to get certain types of loans. These include:
Student Finance Loans
Student finance loans are set up for young people. These loans are to help you with your studies if your course meets the loan requirements. You can also get a postgraduate loan if you are doing a master’s degree. You will be able to apply for certain loans depending on whether you are taking part in a full time or a part time degree.
Guarantor Loan
Another way that you can get a loan is by taking out a guarantor loan. This means that a family member signs the loan with you, agreeing to cover the payments of this loan if you are unable to. The guarantor will be required to go through the same credit checks to ensure that they have a good credit history.
Car Finance
You are able to take out loans when it comes to buying a new car. There are lots of offers available for young people when it comes to buying a car if you are earning enough to pay off the repayments.
What Is The Minimum Age For Taking Out A Loan?
Lots of people are able to get a loan at the age of 18. However, certain banks or lenders will only loan to those over the age of 21. At 18, you are likely to struggle to get your loan approved as it is difficult to have built up good credit history at this age. If you are working at the age of 18 then you may be able to take out a loan as you are earning enough to pay the loan back each month.
Things To Consider Before Taking Out A Loan
It is very important to consider the decision of whether or not you need a loan before you decide to take one out. This is very important because if you take out a loan and cannot afford the repayments, you will get yourself into debt. When you are taking out a loan, ensure that you can afford the repayments. You will need to consider a few things when you are taking out a loan.
- How much money you need to borrow
- Other ways that you can get the money you need without taking out a loan
- If you can afford the repayments
- What happens if you are unable to repay the loan
It is always a good idea to consider any other ways to get this money before you take out a loan. Loans are usually seen as a last resort as they can be fairly risky to take out, especially if you do not have a stable income. Consider whether you should be buying the product that you need to take a loan out for before you do so.
How Can You Build Up Your Credit Score?
There are lots of different ways to increase your credit score. This will improve if you have some bills in your name. If you pay rent, this will help to build up your credit scores. Any household utility bills will appear on your credit reports, so this will help to improve your credit score. You are also able to build up your credit score by paying things like mobile phone contracts or credit cards.
Final Thoughts
Taking out a loan can be complicated for young people. You should now have all the information that you need on loans for young people in this comprehensive guide!