When you come of age, you are legally eligible to borrow money, but it can be unnerving to borrow money the first time. Perhaps you are given the nod when you put in a loan application, but payments add in interest and monthly fees, adding up the cost of the debt. It is quite apparent that suspicions about your repaying capacity will make you feel disconcerted.
A young person loan is nothing but a small loan that helps you meet unexpected expenses that include but are not limited to unexpected medical bills, laptop repairs, and pursuing courses. These are, in other words, personal loans that you use to meet your unforeseen expenses.
Sounds, too, are discombobulating and challenging to comprehend. A young person’s loan is not a type of loan; it is instead a term used to address a small personal loan aimed, in particular, at young people. These loans are also known as 1oans for 18-year-old people. As is the case with other loans, you are supposed to make payments as soon as you borrow money – either in a lump sum or in instalments, depending on the amount you borrow. No credit histories are required to qualify for these loans.
What kind of loans can you get as a young person?
The following are the types of loans you can consider taking out as a young person:
- Student loans
Student loans are available from the Student Loan Company and direct lenders. You can use these loans to fund tuition fees and living costs. Most of the students rely on the SLC for funding their education-related expenses as they do not have to pay back the money as long as they start earning and they are earning over the threshold income. If you borrow from direct lenders, you will have to start making payments immediately.
- Personal loans
Personal loans will come in handy if you have to borrow money to repair your laptop. These small loans are also not subject to a credit check. Even if you do not have a credit history, you will get approval provided you prove your repaying capacity.
One of the benefits of these loans is that your payments can be divided into fixed weekly instalments. This makes it more manageable for you to clear your debts faster.
- Guarantor loans
Guarantor loans are also a type of personal loan, the only difference being that someone will act as a guarantor. This is usually required when you are to borrow a more significant sum. Bear in mind no lender will approve your application with a larger sum without any credit check. Lenders would want you to arrange a guarantor who can be your family and friends to lower their associated risk. They must have a good credit score to qualify for these loans.
Can young person’s loans improve your credit score?
Young-person loans cannot improve your credit score at all because they are not reported to credit reference agencies when you apply for them, and one of the reasons for this is that no inquiries are made on your credit report.
However, if you make a default, you will face dire consequences. Your credit score will plummet, and you will fail to qualify for a loan at a lower interest rate down the road. Another reason why these loans are not subject to improving your credit score is that the payment is made in a lump sum.
Despite on-time payments, it is hard to clearly deduce that you can stick to repayments when there is a fluctuation in your financial situation. Therefore, if you are looking to borrow money to build your credit rating, you should apply for an instalment loan that lasts for a period of at least 6 months.
What should you consider before applying for these loans?
Before you apply for these loans, you should ask the following questions:
- Do you actually need the cash? These loans are particularly aimed at funding small emergencies. If you can afford to pay back, apply; otherwise not.
- How much do you need? It is likely that your budget or pocket does not allow you to borrow as much as you want.
- Can you afford the repayments? It depends on the borrowing sum and a lender’s policy whether you will pay down the debt in lump or instalments. Make sure you can afford to pay back the debt on time.
- Do you have a backup plan? What if your financial situation is turned upside down? For instance, you lose your job. You should have a plan B to keep up with payments.
- Is there any more affordable alternative? The next thing is to see if it is actually the most competitive way of borrowing. If not, I would prefer another alternative, like fair credit loans in the UK.
How should you improve your credit score?
A young person loan can help build your credit rating if you are to clear your debts in instalments. Timely payments can boost your credit score, provided your lender reports them to credit bureaus. However, you should try to build your credit rating through other ways as well.
- Take out a credit card, use it at least once a month, and pay off the balance in full on the due date. Make sure you do not utilize more than 25% of your credit card limit.
- Open a bank account in your name and move bills that your parents paid into your name.
- Register to vote because some lenders will check these details.
- Pay on time what you borrow.
To sum up
Young person loans can help you meet unforeseen expenses. As far as building or improving your credit score is concerned, they can do so only when they are to be paid back over an extended period. These loans are simply personal loans that you can apply for by filling out the application form online.
