Sometimes, life brings about certain situations that require you to get financial help. But can you get a loan under 18?
As an under 18, getting a loan is very difficult since it’s improbable you’ll have a credit history. Another limit to financial opportunities for those under 18 is that you cannot legally sign a loan contract in most countries.
1. Loan Options for Under 18
However, there are some loan options for under 18. These include:
Federal Student Loans
These loans secure your tuition fees and living expenses; you can apply for these when you are under 18. In the U.S., you can sign a promissory note for one of these loans, even though you are still considered a minor because of the 1992 amendment to the Higher Education Act.
You don’t need a cosigner or a credit history to sign for a student loan. Still, several factors play a role in the amount you may qualify for a federal student loan, including your family contribution, enrollment status, year of school, and tuition cost.
Secured and Unsecured Personal Loans
You can only get a personal loan if you are over 18. One of the only ways to get approved is if you have an adult cosigner. Your cosigner agrees to take responsibility for your debt if you have difficulties making repayments. With a personal loan, you get the approved amount and pay it back monthly.
However, suppose you have a regular income and have established a credit history as an under-18. You can apply to credit unions, banks, or other creditors for a loan in that case. Expect higher interest rates if accepted because of your age.
Private Student Loans
The Higher Education Act also allows you to apply for a private student loan. These loans usually have higher interest rates, but you will need a cosigner because of your lack of credit history.
One advantage of these loans is that you can secure better lending terms and more money if your cosigner has a good credit history. The higher rates make these loans risky for younger people, but if you struggle to meet your monthly payments, apply to refinance them with a bad credit loan.
Secured Credit Cards
Secured credit cards extend your credit based on your security deposit. Therefore, your line of credit equals the amount you have deposited with the credit card company. These cards are an excellent way to build your credit score since they report to credit bureaus. At under 18, you may not meet the age to get a credit line, but your parents or someone older can add you as an authorized user of a secured credit card, helping you build a credit score until you can apply for your own.
2. Exploring Loans for Minors
It is improbable that at under 18, you have a bad credit rating since you have never borrowed money before. One instance that can make your credit score suffer is if you repeatedly apply for loans and are always turned down. However, at under 18, the most likely scenario for not getting a loan is that you have no credit history, meaning no credit score.
It’s slightly easier to start looking for a loan with no credit than a poor credit score. However, you have minimal options. Additionally, those lenders that will extend credit will give smaller amounts and charge higher interest rates.
3. How to Secure a Loan if You’re Under 18
When applying for a loan, understanding how the banks decide can make it easier to secure a loan if you’re under 18. Banks want to ensure that you have the means to pay them back and will look at the following:
- Collateral – These are the assets you own that the bank can take hold of if you default on your loan. They can include your car or home.
- Credit – The bank looks at your credit to decide if you will likely default. Unfortunately, with no credit or bad credit, expect a lower loan limit and higher interest rate if you can secure a loan.
- Income – You must prove to the lender that you can repay the loan. The more your income, the more money they will likely lend you. Therefore, debt-to-income ratios play a role.
3. Understanding Under 18 Loan Requirements
Getting a loan relies on the best credit rating you can get as a minor. Understanding under 18 loan requirements makes it easier to secure a loan:
Make the Repayments
If you manage to secure the credit from any lender, ensure you make all the repayments on time. It requires good budgeting and discipline, but it shows you are mature enough to manage financially and builds your credit score, ensuring you can get a more extensive amount later.
Space Out Your Applications
Never apply to too many places for credit at once because these leave a track record, lowering your credit score. Therefore, avoid putting lenders off by spacing out your credit applications.
Use a Soft Search
A soft search entails checking for your eligibility for credit before applying without impacting your credit score. If you see that you aren’t eligible, don’t apply for credit yet.
Prove You Have a Fixed Residence
Lenders feel more secure to lend you money if you can prove you have a fixed place of residence. Even though a lease agreement, a letter from your parents, or a utility account can prove these, one of the best ways is to register on the electoral roll.
4. Tips for Getting a Loan as a Minor
Loans give banks a significant source of revenue because they earn interest on the principal amount they give you. However, banks also want to ensure borrowers will pay them back. Here are some tips from Investopedia to help you make a good impression and loan money correctly as a minor looking for a loan:
- Who You Are – Besides running a background check into your credit history, the bank will also judge your credibility from your appearance. Therefore, dress like a responsible person to ensure you get treated professionally.
- Why You Need the Money – The bank is lending you its money, so it has a right to know what you plan to do with it. Go prepared to show them what you plan to improve or purchase with the loan. Banks favor improving your life because they want to continue loaning you money for future improvements.
- Borrow From Reputable Sources – Other than loaning money from traditional sources, some online lenders make faster loan approvals. However, you must provide the borrower with personal information when applying for a loan. It’s critical to ensure it’s a reputable and responsible company that won’t misuse your information.
- Check the Terms Before Accepting – When a lender decides to give you a loan, they use your risk factors to determine the type of loan, repayment duration, and interest rates. Before deciding, check these terms to ensure they suit you. As a borrower, lower interest rates and a shorter loan duration serve you best.
5. A Guide to Loans for Teenagers
Loans give you fast access to money to complete your education or for life’s little emergencies. Managing to secure a loan as a teenager can prove an excellent way to build your credit score for better access to credit later when you want to make larger purchases like a car or home.
However, there are some cons to borrowing money as an under 18. Loans are more expensive because qualifying for the best interest rates is challenging. Additionally, if the loan defaults, the lender will take legal action and affect your credit rating.
Therefore, as you can see, a loan can provide you with money when you need it most, but it is also a serious commitment that has consequences if you cannot make repayments.
7. Navigating the Loan Process as an Under-18
Once you have determined that you meet the criteria to apply for a loan with a lender formally, they will ask you to provide them with the following personal documents:
- The loan application to begin the lending process. In it, you fill in your personal information, the amount you want to borrow, and the purpose.
- Provide an acceptable form of government ID.
- Take your income verification to prove that you can make the repayments. Some lenders will ask for a cosigner.
- You must provide your proof of address.
Don’t forget that most loans also have an origination fee that covers the loan costs. These include running credit checks, processing the application, and closing. Your credit score may determine the cost of the origination fee, which can be as high as 8% in some cases. Read more about them in this article from Forbes Advisor.
8. Loan Opportunities for Those Under 18
As an under-18, your loan opportunities are limited since you are still considered underage. Besides student loans, you may have access to secured credit cards and a personal loan, rarely without a cosigner.
However, if you manage to secure a loan, now is the time to start building your credit. You can do this by avoiding late payments, keeping your debt low on your credit card, and avoiding too many application inquiries.
By becoming a responsible borrower, once you are over 18, you will have a credit score that will make it easier to become a solid borrower that banks will want to finance.