Are There Loans for 18-Year-Olds with Little or No Credit History?
Turning 18 is a big milestone! You’re stepping into adulthood, making life-shaping decisions, and building your future. It also means you’re old enough to apply for and start building credit.
Applying for that first loan or credit card can be tough, however. As a new borrower, you haven’t yet proven your ability to repay debt, which can make establishing credit more difficult.
Why is it hard to get a loan at 18?
- Lack of credit history. At 18, you have little to no credit history. Credit history is the main factor that proves how trustworthy you are as a borrower. And since trustworthiness reflects whether you’ll repay the debt, lenders may reject your application on lack of credit history alone.
- Not enough employment history. Even if you worked part-time through high school, you won’t have a lengthy employment history when you turn 18. This can make it tough to get approved for loans with favorable terms.
- Inadequate income. Most 18-year-olds won’t have a sizeable bank account or list of assets. Inadequate income will make even the most generous lenders skeptical about your ability to repay the money they loan you.
Types of loans for young people
While getting a loan is tough for young borrowers, it’s not impossible. Here are a few worth considering:
Secured credit cards
A secured credit card is a simple way to start building credit. You add money upfront, just as you would with a checking account, and that amount becomes your spending limit. Use it responsibly and pay on time, and your activity gets reported to credit bureaus, helping you build a credit history for better offers down the road.
Student loans
Unless you have scholarships lined up, student loans are often necessary to go through college. They're also available through both public and private lenders.
While you can do your own research, your high school’s guidance counselor or the college’s financial aid advisor are great people to turn to for advice about student loans. They’ll point you in the right direction and help you apply.
Unsecured personal loans
An unsecured personal loan doesn’t require collateral. These are available from both online and in-person lenders, and your options include:
- Installment Loans
- Cash Advances
- Payday Loans
- Credit-builder loan
Lines of Credit
If you anticipate needing money for an extended period of time, a Line of Credit can be a good option. Lines of Credit provide ongoing access to recurring funds that replenish as you repay what you borrow.
Co-signed loans
If you don’t qualify for a loan on your own, a co-signer with good credit can improve your chances of getting the money you need. Keep in mind, however, that if you’re unable to repay the debt, your cosigner is responsible for paying it back.
Secured personal loans
Secured loans are backed by collateral — or something of value — in exchange for the loan. This could be a vehicle, jewelry, collectibles, or other items, depending on your lender.
Popular secured personal loans include:
- Title loans
- Pawn shop loans
- Savings secured loans
Can you get a loan with no credit history?
Yes, you could still qualify for a loan with no credit history, although the lender will likely consider other factors like your income and whether you have a cosigner. Even so, borrowers with little to no credit history can generally expect:
- Higher interest rates
- Strict repayment terms
- Short repayment windows
Another option is a credit-builder loan, which is specifically designed to help people build (or rebuild) their credit.
Here’s how they work:
- Decide how much you want to borrow. The average credit-builder loan is $300 to $1,000. Keep in mind, you’ll only receive the money at the end of the term, not at the beginning like with traditional loans.
- Make monthly payments to the lender over a period of 6 to 24 months.
- Receive the money from the lender once the entire loan is paid off.
- The lender reports on-time payments to credit bureaus, giving you a credit boost.
Although credit-builder loans don’t result in instant cash, they’re one of the best ways for no-credit borrowers to build their credit history.
What to look for in a lender
It’s important to be patient, do your research, and choose carefully when you’re looking for the right lender. Here are a few things to consider:
Storefront vs. online
Convenience is important. Most borrowers prefer to apply for and repay their loans entirely online, without ever visiting a lender in person.
On the other hand, you might prefer the security of having a lender with a physical location. Advance America checks both boxes.
Public reviews
Reading customer reviews is the best way to determine if a lender is legit. Google, Yelp, Reddit, and Trustpilot are a few of the best places to turn to for reliable reviews from actual customers.
Comparison shop
It’s always a good idea to do your own research. Look into any lender or loan you’re considering to confirm whether they’re a good fit.
Favorable loan terms
No matter how reputable a lender is, they may not be able to offer you the interest rates or repayment terms you’re looking for as a first-time borrower. And that’s okay. Keep shopping around until you find acceptable terms that fit your budget.
Tips to increase your chance of approval
Unfortunately, having no credit history puts you at a disadvantage. The good news is that there are a few things you can do to increase your chances of approval:
- Make sure you have a job before you apply for a loan
- Sign up for and pay off a credit-builder loan
- Enlist a cosigner with a good credit score
- Build up your savings account as much as possible before applying
- Bring reference letters from adults who will vouch for you
- Apply for small-dollar loans
- Apply for secured loans using collateral
- Take time to build your credit before applying
While doing these things doesn’t ensure you’ll get a loan, they could increase your chances of approval.
Alternatives to getting a loan at 18
Build your savings
Although it requires hard work and time, getting a job and building your savings is a valid option. It can help you avoid getting a loan you can’t repay, and ensures you aren’t reliant on anyone for your funds.
Ask friends and family
Even though you’re now a young adult, that doesn’t mean you can’t ask your family for financial help. If that isn’t an option, see if friends or extended family members are able to lend a helping hand.
Apply for scholarships and grants
Even if you need student loans for college, you should still apply for scholarships and grants that you won’t have to repay. There are countless scholarships and grant opportunities you might qualify for based on your grades, extracurriculars, athleticism, and even your family’s income.
Get a credit card
A credit card may be easier to qualify for than a traditional personal loan, but be mindful of interest rates, late fees, ATM fees, and other hidden charges.
Notice: Information provided in this article is for informational purposes only. Consult your attorney or financial advisor about your financial circumstances.
About the author
Jalin Coblentz has contributed to Advance America since 2023. His experiences as a parent, full-time traveler, and skilled tradesman give him fresh insight into every personal finance topic he explores.