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Personal Loans for 18-Year-Olds
Find out what the best loan to suit your needs is as a young adult by comparing your options with Savvy.
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There are several different options that borrowers at 18 years of age can look to when applying for a personal loan. Because of their lesser experience when it comes to taking on and repaying debts compared to an older borrower, applications of this nature are considered a greater risk. As such, options are essentially limited to the following loan products:
Unsecured personal loans
The most common type of personal finance, unsecured personal loans give borrowers the ability to take out a loan without supplying an asset as collateral. This makes them a more attainable loan type for younger borrowers who may not own an asset suitable to use for this purpose.
While unsecured personal loans can range from as little as $2,000 up to as much as $75,000, you’re unlikely to be approved for larger sums if you’re unproven as a borrower. Unsecured loans also come with higher interest and fees than other types, but they’re a viable option, nonetheless.
Secured personal loans
On the off chance you own a car, or other valuable assets like art or jewellery that you might’ve inherited from a family member, you may wish to use it as security on your personal loan. This can expand your borrowing power beyond $75,000 with some lenders (if you can afford it) and reduce rates and fees.
The one thing to note about secured personal loans is that they place restrictions on the asset that you use as collateral. For example, should you use your car, you likely wouldn’t be able to make major modifications to it or trade it in as part of your next vehicle purchase.
Student personal loans
Student personal loans are essentially just personal loans taken out to be used for educational expenses. This can be anything from student accommodation, textbooks, laptops, transport to and from your educational institution or anything else.
Just because they’re called student loans doesn’t mean that they can solely be used for this purpose, though. They’re just as flexible as any other loan when it comes to how you can use them.
Small personal loans
Alternatively, an option you may be required to pursue if you don’t meet all of your lender’s criteria is a small loan. These are suitable for smaller amounts between $300 and $5,000 and come with broader eligibility criteria that make it easier for people in unconventional financial situations to be approved.
You can repay your small loan over a period as short as 16 days up to two years (for amounts above $2,000) and experience fixed, capped fees and no charges for repaying your loan early. They’re ideal for emergencies, too, as you can have the money in your account in as little as one hour.
Types of personal loan
With an unsecured personal loan, you can potentially borrow as much as $75,000 without the need to attach any valuable assets, such as your car, as security. These loans are the most widely available and often the quickest, with same-day approval possible.
Secured personal loans, on the other hand, make use of collateral. This lowers your risk profile in the eyes of a lender, potentially lowering your interest rate and expanding your borrowing power beyond what you may be able to get through an unsecured loan.
Variable interest rates remain open to fluctuation during your term. This means you can benefit from decreasing rates and save on your loan if the market heads in that direction, although you’ll also pay more if rates start rising.
Fixed interest rates are locked at the beginning of your loan and remain constant throughout your repayments. This acts as a valuable protection against interest rate increases, as your loan will be unaffected, but you’ll miss out on potential drops as well.
If you’re paying off multiple debts at the moment, particularly those with high interest (such as credit card debts), consolidating them into one payment can not only make them more convenient to manage but also potentially save you money overall.
Looking to take off on a holiday with your family but want to pay it off at your own speed? Travelling can be expensive, so you can distribute the cost of your next trip over a period you’re more comfortable with by taking out a personal loan to pay for it.
There are so many costs that go into making your dream wedding a reality, from venue hire to catering to dresses and suits and so much more. By taking out a personal loan, you can start planning the big day you want, even if you can’t pay for it upfront.
Home improvements are desirable for a range of homeowners to help keep their living space fresh and interesting, not to mention increase its value. You can get past the financial hit of renovations with a personal loan paid in instalments.
Personal loans aren’t limited to PAYG employees, though. If you’re running your own business, you can still be approved for financing by submitting tax returns and other alternative documents instead of payslips and utilise your funds however you wish.
There’s a variety of expenses which come with being a student, ranging from the cost of your courses, textbooks and computer to your accommodation. Taking out a personal loan can make these costs more manageable by spacing them out.
Some lenders offer green personal loans, which are designed to be used for energy-efficient appliances and products such as solar panel and air conditioning installation in your home. You can qualify for lower interest rates and fees with this loan.
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How to increase your personal loan approval chances
Hold steady employment
Above all else, the best things that an 18-year-old can have are stable employment and a consistent income. With this, a lender will be more confident in you as a borrower that you can repay your loan in full without too many hiccups. Lenders prefer applicants with a demonstrated history in the same job with the same income in the months leading up to the application (which is especially important if you’re only working casually or part-time).
Submit your application with a guarantor
By having a parent or close family member agree to go guarantor on your personal loan, you can give yourself a much greater chance of being approved. A guarantor agrees to shoulder the responsibility of your personal loan should you become unable to. They essentially act as loan security which not only increases your chances of approval but maximises your borrowing power and reduces the interest and fees you’re likely to be charged on your loan.
Find a co-borrower
If you’re living out of home with a partner, or simply wish to build your credit score with a parent, you can apply for a personal loan with a co-borrower. By shifting the reliance from one income to two, your loan comes with added security and can become more manageable for you and your co-borrower.
Build your personal savings
You can also improve your approval chances by developing your savings account over time. This is because it demonstrates financial discipline to your lender and serves as a back-up for paying your loan should your income stream run dry during your repayments. Applicants with more in their savings accounts can also experience lower interest rates on their personal loans.
Apply for smaller amounts
Of course, one of the simplest ways to reduce the level of risk your lender feels in your application is to ask for a smaller amount. The less money your lender commits to giving you, the lower the risk they take on and the greater your chances of approval. Supplementing your loan amount with savings also saves you on interest and fees that you would’ve paid had you accessed 100% finance.
Frequently asked questions about personal loans for 18-year-olds
Yes – but not all Centrelink benefits are considered eligible sources of income. The following are usually accepted by lenders who are able to work with government benefits:
- Disability pension
- Carer’s pension
- Single parent payment
However, payments such as JobSeeker, Youth Allowance, Austudy and ABSTUDY aren’t considered acceptable income sources on personal loans, as they’re conditional on an age, employment or study status which can change unexpectedly.
There’s a chance that, upon rejection, your lender will return to you with a counteroffer for an amount they’d be willing to approve you for. This generally occurs when you meet all of their criteria otherwise, but don’t pass their affordability check. If your application is outright denied, you should be careful before submitting your next one: each unsuccessful application goes on your credit file and too many in quick succession can reduce your approval chances.
For a standard personal loan, the length of time you can take to repay your loan depends on the amount you’re borrowing. For instance, your lender may only let you take one to two years to borrow a low amount like $5,000 but, were you to borrow upwards of $30,000, it’s likely that five or more years would be accepted. Because 18-year-olds aren’t likely to be approved for large sums, you’ll probably be required to repay your loan over a term on the shorter end of the scale.
Yes – in some cases, particularly when you’re a casual employee and/or have only been employed for a short time, your employer can submit a letter reaffirming your job security to your lender. This can help boost your approval chances when you otherwise may not have been accepted for financing.
When you apply for your personal loan, you’ll need the following documents as part of your lender’s requirements:
- Your last two payslips (90 days of bank statements and employment contract may be required)
- Any applicable Centrelink income statements
- Photo ID in the form of your driver’s licence and/or passport
- Internet banking details
- Information on any existing assets and liabilities
Yes. This can be a great way to save money if you have minimal credit history, as you can access a lower interest rate than you had access to at the time that you took out your personal loan.
Helpful personal loan guides
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Personal loans come in all shapes and sizes, so read more about the ways you can use them, as well as how they might work for you.