Getting a loan at 18 years old is often more difficult than simply applying and being approved. You probably have little to no credit history, little savings and might not have a high-enough income to meet many lender’s eligibility requirements.
So what are your options if you’re an 18-year-old who needs a loan? Read our guide to find out.
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While your options might be more limited than more experienced borrowers, you might be able to qualify for one of the following options:
You might be able to get around your lack of credit history by applying for a loan with your current bank. Banks are sometimes more willing to lend to you if you have a long history with them, including holding a chequing account, savings account and any other products.
If your bank doesn’t have a loan you want to apply for, you might have more luck applying for personal loans in lower amounts. The minimum loan amount for some personal loan lenders is $1,000, but you can find other lenders offering smaller amounts.
Some credit unions and local banks offer small-dollar credit-builder loans that are designed to help build up your credit history — offering sometimes as little as $100. They’re typically short-term with comparably low rates and can help you qualify for larger amounts of financing in the future, including credit cards.
If you want to buy a car, secured loans are less risky for lenders because they’ll be able to recoup their losses if you default. New and used car loans are available and you can get a lower rate than with an unsecured loan. Remember that if you default on your loan repayments, the lender can seize your car.
If you find you’re ineligible for a bank loan, you may consider asking your parents, another relative or even an older close friend to be a guarantor for you. This person will be taking on a large responsibility because they are agreeing to take on the loan payments if you can no longer make them. Not all lenders allow you to apply with a cosigner.
Lenders that might accept 18-year-old applicants
How can I find a competitive loan?
Follow these steps to increase your chances of getting approved for a loan:
Step 1: Get a copy of your credit report
Chances are you don’t know what your credit score is, let alone your credit history. Having an idea of what your credit history looks like will help you determine which lenders you qualify to borrow from. Getting an estimation of your credit score can help. You can find reputable websites online that offer a free copy of your credit report, or contact one of the two credit bureaus: Equifax or TransUnion.
Most reputable lenders tend to be wary of lending to people who don’t have a source of income. Even having a small part-time job can help you get approved for a loan since it shows that you’re generating at least some income. Your ability to repay your loan, which means you need some sort of income, is one of the most important factors for a lender. Look for jobs you’ve had in the past or currently hold that can boost your application.
Step 3: Look for a cosigner
You don’t necessarily need a cosigner to borrow at 18, but it could help you borrow higher amounts at more competitive rates than if you applied alone. Reach out to family members and friends that have a stronger credit history than you to find out if they’d be willing to help you out. This will help you narrow down your choices since not all lenders allow cosigners on personal loans.
Step 4: Compare lenders
It’s generally a good idea to compare lenders if you want to find the most competitive loan. Finding a lender that either accepts cosigners or is willing to lend to someone with little-to-no credit history can be difficult.
Compare the following features to find the most competitive loan you can qualify for:
Interest. Check whether the interest rate is fixed or variable and how competitive it is compared to other similar loan products.
Loan amounts. Lenders offer varying minimum and maximum loan amounts, but what you’re offered ultimately depends on what you can afford to repay. This is determined by the criteria set by the lender. Don’t borrow more than you need since you’ll pay interest on the amount you will borrow.
Fees. There are different types of fees you can be charged, ranging from establishment fees to monthly fees and early repayment fees. Find out what fees are associated with your loan before signing on the dotted line.
Loan terms. Lenders will offer different loan terms. Budget in the amount you’re able to repay each month and determine how long you’ll need to pay back the loan. Loan terms usually range from one to seven years.
Step 5: Get preapproved
Many lenders allow you to apply for preapproval — also known as prequalification — by filling out a simple application. It’ll let you know if you qualify and often give you an estimate of the APR, loan amount and loan term you can expect without doing a hard credit check.
Hard credit checks, also known as a hard pull or inquiry, can make your credit score take a temporary dive and will make it more difficult to qualify for another loan. A hard pull usually takes about 5 points off your credit score.
Step 6: Apply
Be honest and accurate when you’re filling out your application — one of the top reasons people get rejected for loans is mistakes in the application. Re-read it a couple of times to make sure there are no inconsistencies.
If you’re accepted, it’s also important to read the terms and conditions of your loan before you sign your loan documents. If you’re having trouble understanding it, reach out to your lender or ask a friend or family member for help.
Tips for getting a loan at 18
Show that you have savings. If you can show the lender you’re good at saving, the lender may be more willing to approve you for a loan. A steady savings history will work best with your current bank as they can view your account information when you apply.
Offer a deposit. Having a deposit when you apply for certain types of loans, like a car loan, shows you’re in a good financial position. The larger the deposit, the less you need to borrow, and the more likely you’ll be approved for the loan.
Get a letter from your employer. If you’re only employed casually or have not been employed for long, a letter from your employer stating the security of your employment may help your application.
Apply for a lower amount. Applying to borrow too much when you have little credit history or don’t earn a high income can be a red flag to lenders and result in an automatic rejection, instead of an offer for a lower amount.
Apply for a secured loan. Secured loans, such as car loans, are less risky for banks because they will be able to recoup their losses since they can seize your collateral. In addition, secured loans usually have lower interest rates.
Benefits and drawbacks to getting a loan at 18
Access to funds. By getting a loan, you’ll have quick access to the funds you need.
Build up your credit history. Acquiring a loan allows you to begin establishing and building your credit history. This ultimately affects your eligibility for other types of financing and access to better interest rates in the future as well.
Limited loan amounts. If you have no credit history or limited credit history, you may only be eligible for a small loan, which may not be enough to cover what you need.
Potentially high rates. You probably won’t be eligible for a loan with low rates and favourable terms until you have a strong credit and employment history.
Risk of getting into debt. Taking on any loan comes with risk, so make sure you’re able to make your repayments on time. Don’t borrow more than you need since you will pay interest on the amount you borrow.
How to apply for a loan at 18 years old
Once you’ve compared your loan options, head to the lender’s website to apply for the loan via a secure application page. Before you apply, make sure you meet the eligibility requirements and have the necessary documents on hand to streamline the application process.
While it may vary between different lenders, you will usually need to meet the following requirements:
Be 18 years of age, or the age of majority in your province or territory
Be a Canadian citizen or a permanent resident with a valid Canadian address
Have a bank account
Meet any credit score requirements
Meet any income requirements and have proof of income
You will usually need to provide the following:
Your personal details. This includes your full name, date of birth, address, email address, phone number and Social Insurance Number (SIN).
Your employment details. You may need to provide your employers name and contact information.
Your income details. You may need to submit pay stubs or bank statements to provide proof of your income.
Your banking details. You will need to provide the name of your bank, the branch address and transit number and your own personal bank account number.
Frequently asked questions about loans for 18-year-olds
Compare the interest rates offered by different lenders and find a loan you’re eligible for with the lowest rates. Remember to check the APR, as this includes fees and is more representative of the true cost of the loan, instead of the interest rate alone.
Your loan applications count as inquiries on your credit report and may affect your credit score slightly, especially if you apply for too many forms of credit at one time. Applying for too many loans can not only negatively affect your credit score but can also be a red flag to lenders, who may reject you for further loans. Try to wait a few weeks until you make another loan application, especially if you have limited to no credit history.
You can but you’ll have to apply with a cosigner. This means the cosigner will be responsible for the loan if you default on your payments. Read more about your student loan options by checking out our guide to student loans.
Aliyyah Camp is a writer and personal finance blogger who helps readers compare personal, student, car and business loans. Aliyyah earned a BA in communication from the University of Pennsylvania and is based in New York, where she enjoys movies and running outdoors.
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