What loans can a young adult get?
Most lenders require you to have a regular income and like to know that you can responsibly manage your money before deciding to lend to you and will check your credit rating to see if you’ve paid your bills on time.
If you haven’t had credit before, it can sometimes be difficult for a young person to find a provider willing to lend to you because lenders don’t have any history of your previous borrowing habits.
If you haven’t taken out a loan or credit card before, a lender may be able to see how you’ve handled your mobile phone contract or overdraft if you have one. If you’ve never taken out a phone contract or used an overdraft facility, it can be difficult for lenders to decide what level of risk lending to you would be.
If you have no credit score, you may be offered a personal loan, but you’re likely to pay more interest, and the size of the loan you’re offered may be smaller.
How can I build my credit score as a young adult?
There are things you can do to start building your credit rating if you’ve never taken out credit before.
Register to vote
First things first, it helps if you’re registered to vote. If you’re moving around a lot, registering to vote can take a while before it starts to impact your credit rating, but it’s always worth doing because it helps to prove where you live.
Use a free credit monitoring service
Free apps like Experian, ClearScore and Credit Karma can help you keep track of your credit score, meaning you can check for errors, receive handy tips on improving your score and learn what’s impacting your credit score.
Pay your bills on time
Paying your bills, including rent, water, energy, gym, mobile phone and council tax bills will all help towards building your credit score. Loans and credit card repayments will impact your score the most, but consistently paying your essential bills will also have a positive affect on your credit score.
Apply for a credit card
Applying for a credit card is an excellent way to start building your credit score. If you have no or little credit history, you’ll likely be offered a card with a low credit limit and high-interest rate.
You’ll have a month to pay off any balance on the card, so as long as you always repay what you owe in full within 30 days of your statement date, you won’t pay any interest on your purchases. You may need to use your card consistently for six months before you see any improvement in your credit score.
How do loans for young adults work?
Young adult loans work in the same way as any standard loan. You’ll borrow a sum of money and then pay it back over a set period of time, plus interest. Typically personal loans for young adults are taken out over 3 - 7 years, although it’s possible to get shorter and longer loan terms.
Your monthly repayments will be the same each month and will include the cost of the interest. When comparing loans, the lower the APR is, the less interest you’ll pay on the loan.
Most loans will charge you an early exit fee if you decide to repay the loan before the agreed end-of-term date.
What are the pros and cons of young adult loans?
The advantage of a young adult loan is access to cash quickly, which can be helpful if you want to purchase things like a car or a bike, for example.
A loan can also help you to build your credit score, providing you repay on time and in full. Having a good credit score means you can get better deals on interest rates if you want to borrow money in the future.
The disadvantages of a loan include the long-term commitment of finding the money to pay back the loan every month over a long period of time, which prevents you from being able to save.
The other disadvantage of taking out a loan is the risk you run if you cannot repay the loan. If you struggle to repay, miss a payment or are late paying, your credit score will be negatively impacted, meaning you may struggle to be accepted for credit products in the future.
Are there any alternatives to young adult loans?
There are loans designed for students to support you when you’re studying, as long as your course meets the requirements. They are called student-finance loans and are provided by the government.
If you’re a postgraduate student, you may also be eligible to apply for a Master’s loan if you’re studying for a master’s degree. These loans are also made available by the government.
If you’re not a student, you may be able to apply for a guarantor loan, which is when a family member (typically a parent or guardian) guarantees to repay the loan if you’re unable to.
Can I get a young adult loan with bad credit?
Being young with little credit can make it harder to be accepted for a loan. If you have bad credit, it will likely make it even harder for you to find a loan provider willing to lend to you.
You may still be able to get a loan if you’re young and have bad credit, but you’re likely to need a guarantor who would be responsible for repaying the loan if you were unable to.
You’ll also need to pay high-interest rates, and the amount you can borrow will likely be smaller.
What if I don't have any credit history?
If you haven’t taken out a credit product before, it doesn’t mean you have bad credit - it just means you have no credit history for a lender to review and assess the risk of lending to you.
Instead, a loan provider may look at how you’ve handled your mobile phone contract or other utility bills and how you’ve consistently paid your rent.
You can be offered a loan with no credit history, but you’re likely to pay high-interest rates, and your loan amount may be relatively small.
There are ways for you to build your credit history. One example of this is by taking out a credit building credit card.
It's important to always pay the balance of your credit card off before being charged interest on your balance. Credit cards can be a helpful way to build your credit rating but come with a financial health warning.
If you do not repay what you owe on the card every month, you could wind up paying much more than the goods or services you purchased with it are worth and become stuck in a cycle of debt.
What are the best loans for young adults?
This will depend on your circumstances, your credit score, and what you need the loan for. What’s best for one person won’t necessarily work for you.
You’ll want to ask yourself a few questions when deciding which loan to choose.
- How much do I need?
- Do I really need the money?
- How long would it take me to save up instead?
- Can I afford the repayments?
- Is this the cheapest way of borrowing the money I need?
- How long will I repay the loan for, and what will my income be in the future?
Once you’ve asked yourself these questions, you’ll be better equipped to decide which loan is right for you.
Young adult loans FAQs
When you take out a personal loan, once the cash is in your bank account, it’s entirely up to you what you use the money for. Many young people looking to get a loan will use the funds to pay for a new car or to pay for a course or training.
Ultimately, it’s up to you, but it’s a good idea to seriously consider the long-term commitment of paying back a loan before you decide to borrow a large amount of money.
If you need a car to get to work and don’t have any other method to get there, then getting a loan to pay for a vehicle can be a good investment.
If you were considering a loan to pay for something unnecessary, such as a large television and expensive speakers, it’s a good idea to wait to save up for these things instead.
Before committing to a loan, you need to ask yourself if the debt you’ll be taking on could positively or negatively impact your life. Good debt may help you reach your life goals quicker - for example, buying a car with a loan may mean you can commute to a job you can’t get to via public transport, which will ultimately positively impact you.
Bad debt means taking on credit products that don’t have any long-term positive effects on your life, for example, taking out a loan to go on holiday. Although you might have a great time, it’s not a good investment because the holiday might only last two weeks, but you’ll be saddled with repaying the loan over many months for a short-lived trip.
For most lenders, you need to be 18 or over to apply for a loan, although some providers require you to be 21.
This will depend on the lender, how much you can afford to repay each month and your credit history.
Most personal loan providers will allow you to borrow between £3,000 and £25,000, but the amount will likely be smaller if you have little or no credit history.