For many young people, being approved for a loan can be a real challenge, with lenders being understandably cautious surrounding the lack of financial history – whether that be in regards to income stream or debt management experience – associated with a young applicant’s age.

This isn’t to say borrowing options aren’t available, however. While loans for young people are, of course, more readily available to those who have experience with debt repayment or have a steady stream of income, this generally isn’t applicable to a significant proportion of young adults. As such, lenders have a number of options available to young people – let’s take a closer look…

What is the minimum age to apply for a loan?

You must be at least 18 to apply for a loan, with some lenders only accepting applicants over the age of 21.

This isn’t to say you’re sure to be accepted for a loan if you meet the age requirements, however. On the contrary, your age will act as a major red flag to many lenders considering your application.

Why is it harder to get a loan when young?

When deciding upon the eligibility of an applicant, lenders are effectively practicing risk management, evaluating how confident they are in the applicant’s ability to meet repayments. They make this judgement based on a variety of factors, however this is primarily based on the young person’s credit score and credit report.

A credit report details a comprehensive overview of your financial history to inform your credit score, which basically acts as a grade of your financial reliability. As young people typically don’t have much financial history, your credit score will subsequently be low, making it harder for you to obtain a loan. This is because lenders can’t be confident in how well you manage your finances and, subsequently, how much of a risk you are to lend money to.

How can you build up your credit score when young?

Building up your credit score is the best way for young adults to improve their chances of being approved for a loan, however this can often be easier said than done.

Your credit score builds as you prove your ability to meet payments such as household utility bills that, most likely, haven’t been under your name to date. Moreover, lenders favour applicants with fixed addresses and those who are registered on the electoral roll. But with a large proportion of young adults being students and subsequently moving addresses year-to-year, this is another factor that can work against you.

As such, if you’re a young person hoping to be accepted for a loan, ensure you’re registered to vote at the same address you use to apply for a loan. Additionally, look to prove your ability to make payments by ensuring direct debits such as phone contracts or household bills are in your name.

Do all loans depend on your credit score?

In short, no. There are a number of loans for young people that don’t take your credit score into account, making you more likely to be accepted as a result.

Student and career development loans

Many lenders have loans specifically tailored towards those looking to pursue further education. Although in these instances government-backed student finance schemes are the best option, for some young adults this isn’t sufficient.

Student and career development loans will typically come with higher rates of interest than standard unsecured loans, however will often offer more flexible repayment terms designed to help young people make repayments at a more convenient time (such as after graduation, for example).

For more on student financing, why not check out our blog post detailing everything you need to know here?

Guarantor loans

Guarantor loans are a great option for young people looking for external financing as they don’t rely on your credit score. Instead, lenders allow for a friend or family member to guarantee the loan, meaning they’re liable to make any payment that you miss.

Guarantors will be required to have a good credit score to be deemed reliable, however for many young people this isn’t an issue, as parents or older family members will often have a far more secure financial history, This being said, interest rates can be steep on guarantor loans, so be sure to evaluate your options carefully.

For more on guarantor loans, why not check out our page dedicated to detailing everything you need to know here?

What are the alternatives?

There are a number of alternatives to loans for young people that may be more viable funding options.

Credit cards can provide a more flexible form of borrowing, with some banks offering special young persons’ cards that, although often with higher rates of interest, have less stringent repayment requirements. Credit cards can be a great way to help you build up your credit score while simultaneously borrowing and can subsequently be both a short-term and long-term financing solution. However it’s also worth noting that you won’t be able to access the same amount of money as you would from a loan. To find out more about whether a credit card is right for you, check out our page here.

Alternatively, enquire into opening or extending an overdraft as a short-term borrowing solution. Though some overdrafts can be expensive and restrictive, they won’t take your age into account – unless you’re a student, in which case you might be able to benefit from 0% capped overdraft offers while studying.

All information correct at the time of publication.

The Jolly Good Loans blog is full of helpful financial tips and advice, and remember, if you’re having financial difficulty, there is help available. Head over to the Citizens Advice website or call the free national debt helpline on 0808 808 4000.