Loans for Teens | What are they?
If you need funds to purchase your first car, pay for school or cover unplanned personal expenses, you may try to borrow money from family or look for loans for teens.
Seeking your first loan can be an overwhelming experience, especially if you don’t have an established credit rating. Still, it is possible with some preparation before you purchase.
A loan is an agreement between a lender (a bank or financial institution) and a borrower (you) for a one-time money transfer. The borrower agrees to pay the lender, with interest, in regular, planned payments. You must be at least 18 to apply for a loan.
You’ll need to fill out a credit application and agree to a credit rating check to get a loan. Even if you’ve never had credit before, it’s wise to check your credit score to ensure it is clear of any errors.
Definitions to make a note of:
- Term: Length of the loan. This could be months or years.
- Instalments: These are regular, planned loan payments, including interest. The amount of your instalment payments is based on the term of the loan.
- Interest Rate: A percentage of the loan the lender will receive. The higher the rate and the longer the term, the more you’ll pay in interest.
Car Loans for Teens
Even without a credit score, if you are 18+ and have a regular source of income, it is possible to get a car loan. Some lenders will require a down payment and a co-signer to secure the loan.
The co-signer can be a family member or friend who also agrees to be responsible for repaying the loan, even if they are not the person expected to make the payments.
Though it’s possible to get a loan through a traditional bank, many first-time borrowers find alternative lenders, like credit unions, online lenders, and peer-to-peer lenders, are more willing to extend credit to those with little-to-no credit score.
However, they offset the risk with higher interest rates, making your purchase more expensive.
Personal Loans for Teens
Many teens will seek a personal loan to pay for college, university, or grad school. These are excellent investments in your future but can be quite costly.
Major financial institutions have credit options for post-secondary education. The repayment schedule often doesn’t start until after graduation, allowing the student to get a job before the repayment period begins. Interest rates tend to be low.
Seeking a personal loan for other large purchases, medical or dental expenses will have similar repayment timelines and lender options as a car loan. However, the loan requirements might be stricter, especially if there is no asset, like a vehicle, to secure it.
Whichever type of loan you choose, it’s smart to request a loan pre-authorization before you purchase. Then, you’ll be in a better position to negotiate loan terms and interest rates that fit your budget.
To be a good credit citizen, you need to pay your installments on time and in full. So, make sure you are not spending more than you can afford. Building a strong credit score is an excellent step toward a healthy financial future.
By: Robert Puharich | October 16, 2021 |