8 loans for 18-year-old and no-credit borrowers
As a teen borrower, you likely have no credit history. However, lenders expect this. Older, experienced borrowers might have a leg up regarding creditworthiness, but there are still plenty of lending options out there.
Here are eight lending options to consider as a teenage borrower:
1. Cash advance apps
Traditional lenders like banks or credit unions may turn you away if you have no credit history. But you may be able to get an advance on wages you’ve already earned through a cash advance app — even if you get paid hourly.
Apps like MoneyLion or Brigit offer free cash advances and other financial wellness services to members who pay a monthly subscription fee. Others might suggest a tip of up to $14 per advance, though it’s not required.
Since income is the main determining factor in eligibility, your lack of credit history doesn’t affect your chance of approval. But you may not be able to borrow more than $200 per pay period.
2. A loan from your current bank or credit union
Banks and credit unions can be more willing to offer your first loan if you have a long history with them — especially community banks. You may get around your no-credit situation by applying with them if you have an existing account, positive account balance and regular income.
3. Small-dollar unsecured loan
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. You can find personal loans as low as $1,000. But some lenders offer smaller amounts on marketplaces like Credible, which partners with lenders that offer loans as small as $600.
4. Cosigner loan
Unsecured personal loans with cosigners exist, but they’re pretty rare. If you can find a lender that offers unsecured personal loans with cosigners, you may consider asking your parents, another relative or even an older close friend to be a cosigner.
When you apply with a cosigner, the lender considers the highest credit score and income on the application. If you can’t repay the loan, then repayment becomes their responsibility. This adds security to the loan, increasing your approval odds.
A cosigner is not the same as a coborrower — also known as a joint borrower or joint applicant. A coborrower can only help you get approved when you lack income, not credit history. They would have equal responsibilities to the loan as the other borrower, whereas a cosigner only steps in to repay the loan if the primary borrower becomes unable. Think of cosigners like a backup payer that helps you get approved for a loan and a coborrower like an equal partner who repays the loan with you.
5. Car loans
Often, the first secured loan a new borrower gets is an auto loan, and many lenders are willing to work with no-credit borrowers. Most car loans are reported to the credit bureaus, helping you to build a credit history. And since auto loans are secured by the vehicle, getting approved as a new borrower is generally easier than trying for an unsecured personal loan.
It’s also common for teenage borrowers to have a cosigner on their first car loan, usually to increase approval odds or to get a lower interest rate.
6. Credit-builder loans
A credit builder loan can help if your goal is to build a positive credit history when you turn 18 — but they won’t help if you’re short on cash.
Often available through banks and credit unions, credit-builder loans act more like locked savings accounts where you deposit funds into an account that the lender reports to credit bureaus as a loan repayment — which can improve your credit score. Credit score requirements for these loans are less stringent since they’re designed for borrowers with little or no credit.
It works like this: Suppose you were approved for a credit builder loan for $500. The lender opens an account for you, and you make payments until you’ve paid $500. Once you complete the loan, the $500 is released to you.
7. Student loans
Students are one of the only loans an 18-year-old borrower can likely qualify for without a cosigner. You may even be able to take out student loans as a 17-year-old with a cosigner.
Many people consider student loans just to pay tuition, but they can also be used to cover some living expenses. Student loans can have low rates, long repayment terms and flexible repayment plans compared to personal loans.
However, due to the sizable amount of these loans, they can get out of hand quickly if you’re not on top of repayments. Missed or late payments can really harm your credit, and carrying high student debt can affect your chances of getting a car loan or mortgage down the road. Stay in touch with your student loan servicer if you decide to take on student debt.
8. Credit cards
Credit cards are one of the easiest lending products to qualify for as a teenager. In some cases, you just need to be 18 (or the age of majority in your state), be able to afford minimum monthly payments and have valid identification.
Most credit cards are unsecured, but there are also secured credit cards that you back using a cash deposit. These are designed to help you build your credit history, rather than advancing you money.
If you can’t repay the balance on the card, the deposit you made to open the account can be used to cover the balance. There’s very little risk for the lender, so they’re easier to qualify for than unsecured ones.
Using a credit card the way you would a debit card can be a simple way to start building a credit history. But they can also get out of hand if you overspend. Credit cards are known for high rates, so be mindful of your spending — interest charges can rack up fast.
Not all states allow teenagers to borrow
Every state has an age of majority, or the age you’re considered a legal adult. In most states, it’s 18, but there are some expectations.
The age of majority is 19 in Alabama and Nebraska, and 21 in Mississippi, according to Cornell Law School. So even if you’re 18 in those three states, you legally can’t get a loan or enter any other legal contract.
What credit score do I have when I turn 18?
If you’re a teen and you open your first account, plan on having a credit score around the high 500s to low 600s, which is considered poor-to-fair credit. That’s because the length of your credit history plays a major factor in your credit rating.
Credit scores range from 300 to 850, and the higher, the better. The major credit scoring models (VantageScore and FICO) generate your credit score from the information on your credit reports. Before you build a credit history, lenders consider you a no-credit borrower.
And you don’t automatically get a credit score when you turn 18, according to Experian. To have a credit score, you need to build a credit history by paying on reported accounts like a car loan or credit card — or utility bills and rent, in some cases.
So when you first start, don’t expect to have a great credit score right away. It can take a few years to really see improvement — but make sure you stay on top of all your bills and loans because payment history is the most important factor in determining your credit score.
What do I need to apply for a personal loan?
Lenders have different application processes. But generally, you’ll need the following documents to apply for a personal loan:
- Valid ID, such as a driver’s license
- Bank account with a positive balance
- Recent pay stubs, tax returns or bank statements
- Proof of address, such as a utility bill in your name
- Employment verification or employment address
- Phone number and other contact information
How to get low rates as a teen borrower
Your credit score is one of the most important factors in determining what rates you can get on a personal loan. If you don’t have a credit history at all, lenders can be wary because you haven’t proven your ability to repay the money on time — your creditworthiness is a wild card.
However, there are quite a few things you can do to increase your chances of getting a competitive interest rate:
- Review your credit. You may have a credit history you don’t know about. Student loans, missed electricity bill payments and past-due rent payments can show up on your credit reports. Check your credit reports and score to make sure there isn’t anything harming your credit.
- Be employed. As an 18-year-old borrower with no credit history, your income is paramount to your loan application. Having a consistent work history without long gaps between jobs can tell the lender you’re financially stable. If your income is lacking or you’re newly employed, consider waiting a few months to build a work history or getting a joint personal loan with someone else.
- Apply for a short term. Short-term loans tend to get lower interest rates. Shorter terms present less risk to lenders, so they might offer a lower interest rate. But because you have less time to repay the funds, your monthly payments may be high.
- Compare lenders. There are so many different kinds of lenders, and it’s worth your time to compare their rates, terms and conditions. All borrowers — regardless of credit situation — should weigh options before deciding on a lender.
- Consider a cosigner. Cosigners not only increase your chances of approval, but they can also help you get a lower interest rate than if you were to apply alone. A cosigner with a great credit score (in the 700s or higher) could help you qualify for a competitive rate as a teenage borrower. But very few lenders offer joint personal loans.
You may find it tough to qualify for an unsecured personal loan as an 18-year-old with no credit history. However, it’s not impossible. Luck favors the prepared.
Be sure to compare lenders, review your credit reports, and shop within your limits. For more lending options, check out the best personal loans.