Most of us find ourselves strapped for cash as a student or when we start our first job.
Here, we look at how to take out your first loan.
Loans for young people
There are various options when picking a loan. As a student, the loan with the lowest interest rate will be a student loan, which is repayable once you start working.
Aside from this, there are personal loans available from a variety of lenders. However, before picking one, consider how much you really need to borrow and what repayments you can afford to make each month. After all, it's vital that you don't overstretch your finances.
You might, for example, want a loan to buy your first car, or fund a course. By taking a loan from a bank, you'll pay back the amount you've borrowed plus interest on the capital sum. If you don't stick to the repayment plan, you'll face charges, so make sure you can meet the cost.
Remember that the higher the interest the longer it will take you to repay the loan, and the more it will cost you.
Loans for borrowers with a poor credit rating
There is a big difference between 'poor credit' and 'no credit'. However, they both make getting loans with the lowest rates tricky. If you have no credit history behind you because you have never taken out a loan or any form of credit before, you may struggle to get a loan.
Alternatively, if you have a poor credit rating, you may have missed repayments in the past, or even have a County Court Judgement (CCJ) or bankruptcy against your name.
However, neither situation means that lenders will automatically slam the door on you - but it will mean your options are limited. You are likely to face higher interest payments, and access to smaller loans. The best deals are reserved for borrowers with sparkling credit histories, and a history of making reliable repayments.
However, there are lenders that offer 'bad credit loans' to people who seem a greater risk because of their poor credit history. But these come with higher rates and lower limits.Remember that the higher the interest the longer it will take you to repay the loan, and the more it will cost you.
How young people can improve their credit rating
There are simple ways to improve your credit score. These include making sure your name is on the electoral roll when your local authority sends you details of this. If it's not on this, you're unlikely to get any credit.
Also, space out your applications for credit as each will leave a 'footprint' on your file - and if you're rejected, this makes the next lender less likely to accept you. When you do get credit, make sure you keep up repayments to gradually rebuild a tarnished credit history.
Don't despair, as remember that your credit history isn't the only consideration when providers decide to lend you money. They also take into account your job, salary, for example, along with any other assets you might have.
Moneysupermarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
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Personal Finance: How to Guide on Budgeting, Saving Money and Getting Out of Debt (Fixing Credit, Budgeting, Saving Money, Getting Out of Debt) (Personal Finance Series Book 1)
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