Best Personal Loans for Young Adults
April 2024
Finding a personal loan is a challenge when you're young and don't have much of a credit history. However, it's not impossible. Find out which lenders offer the best personal loans for millenials.
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It's a hard to get a loan when you're young. That's because your credit score and income are two of the most important factors when applying for a loan. Typically, most millenials either have a short credit history or no credit history at all. Young adults also tend to have lower incomes because they only recently joined the workforce. However, there are options available.
Here is SuperMoney's list of the top personal loans for young adults.
Methodology
SuperMoney’s list of the most recommended personal loans for young people is dynamically generated based on advanced algorithms and community feedback. The lenders above boast a history of great customer service, intuitive client portals, and flexible payment options. Additionally, we prioritize lenders that preapprove applicants with a soft credit check before running a hard credit inquiry.
Common Questions on Personal Loans for Young Adults
Can young adults get a personal loan with no credit history?
Yes, but it will definitely be a challenge! However, the lenders in the list above are an excellent place to start.
However, to get decent rates on an unsecured personal loan, you may need to find a cosigner -- a trusted friend or relative with good credit who agrees to guarantee the loan. However, this is risky for the cosigner. If you default on the debt, your cosigner is responsible for making your payments.
If you don't have access to a creditworthy cosigner, there are lenders that do consider borrowers who don't have a credit history. For instance, some lenders provide competitive rates to young adults if they have a good education and work in a high-demand sector. If that doesn't help you and you're in an emergency, consider applying for a payday loan. If you have a car, you can also get an auto title loan. However, these loans have very high interest rates and fees and should only be considered as a loan of last resort.
If you own a home or have other valuable assets, you can try getting a secured loan -- a loan that is secured by a valuable asset, such as a home or car. Since these loans are secured by collateral, lenders can afford to lend money to less creditworthy applicants without having to hike up interest rates.
How can young people build their credit?
Young people often find themselves in a catch-22 situation. They can't qualify for a personal loan because they don't have credit, but they can't get their credit history going until a lender takes a chance on them. If this describes your situation, here are some steps you can take today to build your credit.
- Get a credit card. Look for a card with no annual fees, and pay off your balance in its entirety by the end of each month. If you have no credit, you may have to start by asking a family member or friend to add you as an authorized user on their card. You can also apply for a secured credit card. Secured Credit Cards require you to put down a deposit to guarantee your line of credit. But you get your money back when you close the account. Most credit card issuers are willing to upgrade a secured card to an unsecured one after six months to a year of regular payments.
- Apply for a credit-builder loan (a.k.a starter loans). Instead of handing you a wad of cash, credit-builder loans deposit your monthly payments into a savings account for the length of the loan term. As with a regular loan, you'll pay it off in installments, and the lender will report your payment behavior to the credit bureaus. Unlike a traditional loan, after you finish paying off a credit-building loan, you get the full amount you paid back minus whatever fees the lender charges for managing your account.
- Student loans. You can also start building credit by repaying your student loans. If you didn't go to college, consider getting a small student loan to pay for a short course in a line of work that is in high demand. It will help you improve your credit history and the extra training might help you improve your income also.
What should young adults look for when searching for the best personal loans?
Shopping for a personal loan when you're young is not easy. Keep an eye on the following factors when comparing the best personal loans for young adults:
- APR. This is the total cost of the loan. Look for the lowest APR you can find.
- Loan term. A longer loan term means a higher overall cost, but lower monthly payment. Choose the shortest loan term you can comfortably afford.
- Fees. From origination fees to prepayment fees and missed payment penalties, personal loans can come with multiple additional fees. Make sure you understand all the fees involved when deciding which loan offer is the best deal for you.
- Customer service. You'll want to find a lender that is flexible and easy to work with. If you choose a lender that provides an online portal with an autopay feature, you're less likely to ever miss a payment! Check what other users have to say in our reviews before you choose a lender.
What are the risks of personal loans for young people?
Although personal loans can be a smart way to finance a purchase, they also come with risks. If you have low or no credit, any unsecured loan offers you receive will probably have high interest rates. And if you're unable to afford your monthly payments, it could lower your credit score even more. Further down the line, if you're forced to default on the loan, you could end up dealing with debt collectors and levies.
To avoid these risks, never take out a loan unless you're sure that you'll be able to afford the monthly payments for the full length of the loan term. If you're only working a summer job and your future income is uncertain, it's best to avoid borrowing money if at all possible.
What are some alternatives to personal loans for young adults?
If you need cash but can't qualify for any decent loan offers, try the following strategies!
- Get a second job or ask your current boss for extra hours.
- Sell stuff you don't need.
- Apply for a credit-building loan.
- Get a personal credit card.
- Ask a relative or trusted friend to lend you money.
How to get the best deal on a personal loan when you're young?
The lenders in the list of best-rated personal loans above are a great place to start. But remember you will probably not qualify for the best rates advertised. Your rate will depend on your credit, income, and debt. However, every lender has its own eligibility criteria and method for calculating rates. That is why it is so important to compare the rates offered by several lenders.
SuperMoney's loan offer engine allows you to get preapproved loan offers from leading lenders without hurting your credit.
About the Author
SuperMoney
SuperMoney is the most comprehensive financial services comparison site around. We have published hundreds of personal finance articles and provide detailed reviews on thousands of financial products and services. Our unbiased advice and free comparison tools help consumers make smart financial decisions based on hard data, not marketing gimmicks.
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