Loans for young people

You might need to borrow money at some point before the age of 25, perhaps to buy a car or to cover the cost of emergency repairs.

But for many young people, being approved for a loan can be difficult, because financial providers are cautious about lending to someone with little or no credit history. We look at your options.

How old do you have to be to get a loan?

Nearly all UK lenders offer personal loans for 18-years-old, but some loans are only available to people aged 21 or older. You can’t apply for a loan or other form of credit in the UK if you’re under 18.

If you’re looking for loans for 17-year-olds or loans for 16-year-olds, your best bet might be to persuade the bank of mum and dad to lend you some money. If you’re lucky, they might even waive the interest charges.

What type of loans can young people get?

Aside from student loans, which are specifically for tuition fees and living costs, young people can get other types of loan. These include:

Personal loan – most financial providers offer personal loans up to £25,000, and you can usually spread repayments over a period of up to 10 years. But if you have a poor credit history, or very little credit history, the amount you can borrow may be limited – and come with higher interest rates.

Guarantor loan – a family member or close friend agrees to cover the loan repayments if you can’t. Your guarantor will need to have a good credit score, and interest rates are usually higher than standard loans. Unfortunately, you can’t compare guarantor loans with Compare the Market.

Car finance – this can either be a personal loan used to buy a car, or the car finance you see offered by dealerships to borrow money specifically for a vehicle.

With all these types of loan, you’ll pay back the amount you’ve borrowed, plus interest, in monthly instalments. Make sure you can comfortably afford to pay back what you owe each month. If you don’t stick to your repayment plan, you’ll face charges, and it may affect your chances of getting credit in the future.

Find out more about how loans work

You’ll also see payday loans advertised. Be aware that these are high-cost loans aimed at short-term borrowing. A Government-backed advice service, MoneyHelper, warns that late repayment of these loans can cause serious problems. So check out lower-cost alternatives first.

What are the pros and cons of getting a loan as a young person?

Advantages of getting a loan include:

  • Having money to pay costs in an emergency – for fixing your car, for example.
  • Building your credit history – if you manage your loan responsibly, making repayments on time, you can start to build a credit history and credit score.

Disadvantages include:

  • The likelihood of having to pay higher interest rates than an older person
  • Getting hit with additional interest and late fees, and harming your credit score if you miss a repayment.
  • The danger of getting into serious financial trouble if you find yourself unable to pay back what you owe.

Taking out a loan, however small, should never be a decision made in haste. If you’re thinking about taking out a loan, there’s a few questions you need to ask yourself, including:

  • Do I really need the cash?
  • How much do I actually need?
  • How long will I need this money for and how long will it take me to pay it back?
  • Can I afford the repayments?
  • Is this the cheapest way of borrowing the money that I need?

Compare the Market Limited acts as a credit broker, not a lender. To apply for a loan you must be a UK resident aged 18 or over. Credit is subject to status and eligibility.

What is a credit score and how can it affect you getting a loan?

Your credit score is a rating that shows lenders how good you are at managing money. It’s based on your financial history, including how you’ve repaid debts. So if you pay utility bills, a mortgage, take out a loan, credit card or even a bank overdraft, it can lower or build your credit score.

Your student loan is an exception. It won’t impact your credit score, but it also won’t help you build a credit history.

Having a good credit score will improve your chances of being approved for loans, while a bad credit score could mean you’re declined or charged higher interest rates.

How do I get a loan with no credit history?

Fortunately, a lack of credit history doesn’t mean you can’t get a first-time loan, but it does limit your options. You’ll generally face higher interest payments. And, in many cases, the amount you can borrow will be less than someone with a long-established credit history.

That’s because lenders see you as a greater risk than borrowers with a proven track record of making payments on time. This can seem unfair but, because you have no credit history, lenders can’t predict how you’ll manage credit in the future.

If you want to find out what your credit score is, you can do so through a credit reference agency. The three main UK agencies are Experian, Equifax and TransUnion.

How can you build up your credit score if you’re young?

If you’re worried about being accepted for a loan, the easiest way to improve your chances is to take steps to build your credit score. You can:

  • Open a bank account if you don’t already have one. You won’t be able to get most types of loan without one.
  • Register to vote, as being on the electoral roll is something lenders will use to check your details are correct.
  • Move bills paid by your parents into your name – your mobile phone contract, for example.
  • Always pay what you owe on time, every time

Whenever you apply for a loan, it leaves a ‘footprint’ on your credit report. Being refused a loan, especially more than once, will have a negative effect on your credit score.

When you start looking for a loan, it’s a good idea to use our  eligibility checker to see which loans you’re likely to be accepted for. It uses a soft search, which can only be seen by you, not prospective lenders.

Read more about how credit scores affect the cost of borrowing.

Check loan eligibility

Business loans for young adults

Are you a budding entrepreneur who’s keen to start a new business venture, but need a loan to get your idea off the ground?

As a young person, you might find a traditional bank loan hard to come by because lenders may view you as a risky prospect. However, Government-backed Start Up Loans of up to £25,000 are available for businesses that have been trading for less than three years. See more on Start Up Loans.

Alternatives to loans for young people

If you’re looking to borrow money, a personal loan isn’t your only option. Consider these alternatives too:

Student credit card – if you’re at college or university, you could get a credit card specifically designed for students. It works in much the same way as a regular one, but there’s usually no annual fee and you may be offered perks, such as discounts on rail fares. The credit limit may be low, though, so you wouldn’t be able to use it to buy something expensive, like a car.

Credit builder card – designed for people with bad or no credit history, credit-building cards can help you build up your credit rating slowly but surely. Bear in mind that the maximum spend limit is usually lower than other credit cards and the interest rate will be high.

Overdraft – an overdraft allows you to borrow money through your current account, so you could see if your provider is willing to increase your limit. Only use your overdraft for the short-term and avoid using it for big spends as it can get very expensive.

0% credit card – cards are available that offer 0% on purchases for an introductory period. Provided you pay back what you owe within that time, there won’t be any interest to pay. However, if you don’t manage to do this, you could be hit with steep interest charges.

When taking on any form of debt, think carefully about whether you really need it. Do you have any spare cash to save up for what you want? Or could you save money by cutting costs, reducing your outgoings and increasing your income?  

If you’re having problems with debt, seek help. Find out where to get free debt advice on the MoneyHelper website.

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The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.

Page last reviewed on 19 MAY 2023
by Alex Hasty