How Old Do You Have to Be to Take out a Loan?

Posted on December 23, 2024 by Kayla Harris

Being a legal minor often limits your financial opportunities. While money problems may arise at any stage of your life, lenders typically set strict minimum age requirements and don’t accept applicants who are under the age of 18. However, exceptions exist. Some lenders offer loans with a cosigner that are available to underage borrowers.

Age requirements also vary for borrowers in Minnesota and those who want to get a loan in Alabama due to different state regulations. Thus, there’s no single answer to how old you have to be to take out a loan. Let’s look at some general rules, a few exceptions, loan options available to teens, and tips on how to make your first-time borrowing experience smooth.

At What Age Can You Get a Loan?
Can a Minor Get a Loan?
What Are Common Personal Loan Eligibility Requirements?
Loan Options for Young People
Alternatives to Loans for 18 Year Olds
Smart Tips for First-Time Borrowers
Final Thoughts
FAQ

At What Age Can You Get a Loan?

Generally, lenders only deal with applicants who already turn 18. This happens because an individual only gains a legal status of adult at 18. From this perspective, underage people are not fully responsible for the decisions they make. As a result, a lender can face problems with getting their money back. Additionally, most minors have no or limited credit history, making it difficult to predict their financial behavior.

Still, the legal age is set by local law and can differ from state to state. While most states set it at 18, there are three exceptions. You need to be at least 19 years old to qualify for a loan in Alabama and Nebraska and reach the age of 21 to borrow money in Mississippi.

Can a Minor Get a Loan?

Most lenders will not approve you for a loan if you’re a legal minor. Common rules state a borrower must be over the age of 18 to apply. However, some loan options provide exceptions. Federal student loans come with no minimum age requirement and are available to minors, even without a cosigner and established credit history. Some financial institutions may also offer teen loans backed by a guarantor, who is typically a teen’s parent. Parents are usually able to monitor their child’s account activity via online banking and help them manage the loan and make payments.

Additionally, some car loan options may be available to underage borrowers who are at least 16, provided that they can add an adult cosigner to their application. This way, a cosigner will be responsible for repayment if a teen defaults.

What Are Common Personal Loan Eligibility Requirements?

It’s not enough to be an adult to get a personal loan. Besides your age, lenders also look at the following criteria:

Citizenship: local loan providers only deal with permanent US residents and legal citizens who can provide a valid government-issued ID. Income: lenders want to see you have a stable income that is high enough to cover your monthly loan payments. Debt-to-income ratio (DTI): this ratio shows how much of your current income goes toward repaying other debts you have. Loan providers are more willing to work with borrowers with DTI under 36%. Job history: applicants with a long employment history are considered less risky as they have a stable financial situation. Credit score: traditional lenders always check your credit report via major credit bureaus, which is also known as a hard credit check. This inquiry is made to review your credit score, which represents your overall financial health and shows whether you are a responsible borrower.

Loan Options for Young People

While many lenders make it difficult for young people to get a loan, they can still access several loan options that are available to people with limited credit and employment histories.

Personal Loans with a Cosigner

Also known as joint personal loans, these products allow you to add a guarantor to your application. A guarantor or a cosigner is an individual with a solid credit history and stable income who will be responsible for repaying the debt if you become unable to make your loan payments.

Personal loans with cosigners usually offer amounts between $1,000 and $50,000, depending on the income and credit history of both a cosigner and a primary borrower. Personal loan rates range from 5.99% to 35.99% APR. The repayment is made in equal monthly payments over 12 to 60 months.

Secured Loans

Secured loans are only available to people who reach the age of majority. They require a borrower to provide an extra repayment guarantee in the form of some valuable asset they own, for example, a car. The item will be used as collateral and can be repossessed if you fail to repay your loan on time.

Despite the risks associated with secured options, they are usually cheaper than unsecured ones and are easier to access for people with limited credit history. With their help, you can also get a higher loan amount or more flexible repayment terms.

Student Loans

Student loans are unsecured loans designed specifically for education-related expenses. There are two types of student loans available to young people: federal and private. Federal loans come with no minimum age requirement, don’t involve a cosigner, and are not focused on an applicant’s credit score. To get one, you fill out a Free Application for Federal Student Aid (FAFSA) form. The amount you can get will be determined based on your academic performance, college, and sometimes on the need.

Private student loans are offered by private lenders and come with a credit-based approval process. They also require you to reach the age of majority and typically require a cosigner. These loans tend to be more expensive compared to federal loans. Additionally, the amount you can get will be determined by your or your cosigner’s income.

Car Loans

Car loans are designed to help individuals buy a new or used vehicle. Some options are even available to young people who turn 16 if they provide an adult cosigner. With car loans, the automobile purchased is used as collateral, although you can use it while you make payments. If you default on the loan, the vehicle can be repossessed. Alternatively, a cosigner will be responsible for making payments if you add one to your application.

Loans for automobiles may sometimes require a down payment of 10% to 20%. However, many lenders finance 100% of your vehicle’s cost. Interest rates on car loans usually start at about 6% for new cars and nearly 12% for used automobiles.

Credit Cards

Credit cards allow you to access a revolving line of credit within a certain limit. This way, you can use your card to make purchases or withdraw cash and will only pay interest on the amount you actually borrow. Still, most credit card issuers need a borrower to have an established credit history. Options for young people with no or limited credit typically include secured credit cards. Such products require you to make a security deposit that will then be used as your credit limit.

While young adults can apply for their own car, underage people can become authorized users if they already turn 16 or 13 in some cases. An authorized user gets their own card but will share the account number and balance with a primary user, who’s typically a parent.

Alternatives to Loans for 18 Year Olds

Besides traditional forms of financing, there are also alternative ways to borrow money for 18 year olds.

Online Lenders

Online lenders also accept borrowers who are 18 years old. They offer a fast and simple loan application process that you can complete via an app or website 24/7. Many online lenders usually perform only a soft credit check, meaning that your FICO rating won’t be affected. They typically assess your overall financial situation when making loan decisions.

Still, loans from online lenders may be more expensive due to the risks involved. They may also not provide credit-building opportunities if a lender doesn’t report your on-time payments to major credit bureaus.

Pawn Shops

Loans available via pawn shops require you to provide some of your valuable assets in exchange for a portion of their cost. The asset remains in the pawn shop until you pay back the amount borrowed plus interest. If you haven’t repaid the loan within the agreed period, which is usually up to 30 days, a pawn broker can put your belongings up for sale.

Pawn shop loans come with no credit check and only require you to provide your valid ID and an item to pledge. This makes them quick yet risky and you can lose your asset if you don’t repay the money on time.

P2P Lending

P2P loans are also available to people who have already turned 18. They are offered via digital platforms that connect borrowers with individual investors without the intervention of traditional financial institutions.

These options often provide more flexibility and better loan terms compared to conventional options, especially when it comes to bad credit borrowers. Just make sure to choose a reliable platform to use to avoid risks.

Family Loans

Consider borrowing money from your relatives or friends if you only need a small amount for a relatively short period. Such loans are usually interest-free, meaning that you can save money and get more personalized loan terms that correspond to your current situation.

Just keep in mind that each financial obligation needs to be managed responsibly. Always repay your debts on time so as not to ruin your relationship with the loved ones.

Smart Tips for First-Time Borrowers

Getting a loan can be exhausting when you’re new to borrowing. Here are a few tips for your smooth and responsible first-time experience:

Build a Strong Credit Presence

Good credit scores indicate your responsible financial behavior, showing lenders that you are likely to repay the borrowed amount. Having good credit is essential as it positively affects your entire financial life. Additionally you will be able to get great loan offers at favorable terms if your FICO rating is good to excellent. Get a secured credit card or a credit-builder loan, pay your bills and debts on time, maintain a diverse credit mix, and try to use no more than 30% of your available credit.

Compare Offers

Don’t go for the first offer you see, and do your research first. Most lenders allow borrowers to pre-qualify for a loan without performing a hard credit check. This way, you will have an idea of your potential loan terms and will be able to compare them with those offered by other loan providers. Then, simply choose a loan that fits you most and complete the final application.

Review the Loan Terms

Knowing your loan terms is crucial for your smooth borrowing experience. Read your loan agreement carefully before signing and don’t hesitate to ask questions. Take some time and ask your parents or older friends to review the loan contract with you if you don’t want to rely solely on the loan officer or branch manager. Pay special attention to interest rates, extra fees and conditions that may cause them, repayment terms and schedules, monthly payments, and the total loan cost.

Avoid Predatory Lenders

Predatory lenders are those who use unethical tactics to drive borrowers into debt. They often apply hidden fees and have very high interest rates that are not always outlined in their loan agreements. You can typically detect them by loud statements intended to make their loans look attractive. Keep in mind that if an offer seems too good to be true, it typically is.

Be Realistic About a Loan Amount

It may be tempting to borrow more if a lender approves you for a higher amount. Still, you need to keep in mind that unnecessary debt increases your monthly payment and total loan cost by accumulating more interest over time. Additionally, make sure your loan payment is affordable, and you can comfortably pay it each month during the entire loan life.

Plan for Repayment

You need to have a clear understanding of how you will handle your loan payments. Try to simply put aside an amount equal to your potential loan payment for a few months. This will give you a better idea of whether you can live comfortably without this sum while still covering your other mandatory expenses.

Create a Budget

Budgeting is crucial for your overall financial health. List your income and expenses and see how much money you have left. Then, determine some areas where you can cut off your spending. You’d better use this extra sum to pay more than the minimum for your loan. This will help you repay your loan early and save money on interest.

Set Reminders

Missed payments lead to extra fees and credit score drops. This will make it difficult for you to get a loan in the future. If you’re afraid that you might just forget to make your monthly loan payment, set up auto-pay. This way, the due amount will be electronically withdrawn from your bank account on a chosen date.

Try to Make More Money

High income provides more financial opportunities and makes you look more attractive to potential lenders. Consider freelancing or various gig work on websites like Fiverr, Upwork, or Taskrabbit. If you’re already officially employed, try to move up the career ladder and ask your boss for a raise.

Learn Financial Responsibility

Financial literacy and responsibility will help you reach your money goals and maintain overall financial health. Read more about how loans work, check out some life hacks on debt management and personal finance, and build healthy spending habits. All these will help you always be in control of your finances.

Final Thoughts

While most states set a minimum age for getting a loan at 18, exceptions exist. Some loan options may be obtained if you’re a minor by adding a cosigner to your application. Even if you’re already an adult, you may still face difficulties when getting a loan due to income and job requirements lenders apply. However, there are several loan options with more relaxed requirements that young adults are likely to meet. Just do your research, compare offers, and borrow responsibly.

FAQ

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

In most states, you need to be at least 18 years old to get personal loan approval. Alabama and Nebraska set minimum age requirements at 19, while Mississippi residents can only borrow money when they reach the age of 21. However, some loan options may be available to underage individuals who provide a cosigner.

Can I get a loan at 18 with no income?

Having a steady income is mandatory as you need to prove you can repay the loan on time. However, some lenders may approve you if you’re not officially employed but have an alternative income source reflected in your bank statements.

How to get a loan at 18?

To improve your chances of getting a loan at 18, take some steps toward building your credit in advance. You also need to provide proof of steady income that is high enough to cover your loan payments. Then, you need to find the right loan provider, gather all the required documents, and complete an application form online or at a lender’s store.

What is the minimum age requirement to get a personal loan in Texas?

Texas laws don’t have any exceptions regarding a borrower’s minimum age for a personal loan. You need to be at least 18 years old to qualify.

See also:

References: