Wednesday, April 2, 2014

Too Young to Get a Bank Loan? Here Are Your Options

When you are just starting out on your own, you probably do not have a credit history that will give you a good credit score. A lot of different factors go into determining what your credit score will be. For example, the age of your credit history, the number of accounts you have, the credit you’ve used, and a record of on-time payments are all things that factor in to determining if you have good credit or bad credit.
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Unfortunately, many young people have no credit at all.  It is an ironic situation that you need to have credit to get it, and if you are young and don’t have a credit history, this can put you into a very bad situation.  If you need to borrow money, you may get turned down by a conventional bank because of the fact that you don’t have a history showing the lender you are a credit risk.

The inability to borrow from the bank when you are young does not negate the need for you to take on loans to meet financial expenses. You will just need to be more creative and resourceful in exploring the options that are available to you for borrowing cash.

Options For People Who Are Too Young to Get a Bank Loan
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There are a number of different options to consider if you need to borrow money but if you are too young to get a bank loan.  Some of the alternatives that you may have include the following:
  • Ask a friend or a family member to co-sign for a loan with you.  A co-signer is a person who is equally responsible for paying the debt. If you can find someone in your life who has good credit (or at least reasonably good credit) that co-signer can guarantee the bank that you will pay back the loan.  If you do not pay, the co-signer will become responsible for the debt. The bank will essentially give you the loan on the basis of the other person’s credit. This is good for you because then you can start building your own credit history so you will end up in a better financial position and hopefully with a higher credit score.  You may be able to find someone who is willing to co-sign a loan for you if you’ve always been responsible with money in the past and the bank is just concerned about your lack of credit history. Just be sure to repay the loan so the person who helped you out by co-signing does not end up facing a financial loss as repayment for the kindness.
  • Think about taking a title loan. If you own your own car and you do not owe money on the vehicle, then you may be able to take a title loan. According to title loan company, a title loan lets you tap into the equity that you have in your vehicle and to essentially take a loan by using the car as collateral.  You are able to continue driving the car after you take the loan and as you pay back the money that you have borrowed.  When you pay back the loan, you can keep the car of course and the title will come back to you.  When you take a title loan, you can get the money very quickly and your credit does not matter to the lender.
  • Consider student loans. If you are taking on debt to try to go to school, there are special student loans that are available to young people regardless of whether they have a credit score or not.  Fill out your FAFSA to find out about borrowing options and federally-guaranteed loans to students.  Since student loans are specifically targeted at young people who need to attend college, you are not expected to have a credit history and won’t be disqualified because of your youth.
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These are just some of the different options that could be available to you if you are young and you need to borrow money.  However, in almost all cases, you will need to be at least 18 years of old to borrow money from any source. This is because you can only be held to a contract if you are no longer considered a minor.  

Dan Murphy is a freelance writer specializing in finance. He aims to educate young people on financial responsibility, so they can build a brighter future. 

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