How Young Adults Can Get a Loan Without Established Credit History
It’s indeed challenging to acquire a loan if you have no credit history. This situation is especially true for young adults who are still studying or just starting to build a career. Most individuals ages 18 to 19 are yet to start borrowing money and making payments. This makes young adults among the “credit Invisibles” in society.
The question: can young adults who are strapped for cash get a loan without having an established credit history?
Yes, it’s possible for people with no credit history to borrow money. But the catch is that you may have to pay a higher interest rate than when you have an established credit score. So, if you’re a young adult with no credit history and you want to get a loan, here are some options that you should consider.
Do you want to get a loan that builds your credit? Then, you must apply for credit-builder loans from trusted lending institutions for that purpose. This type of loan can provide you with cash amounts between $300 and $1,000.
Credit-builder loans are paid in installments, and the lending institution reports your payments to the credit bureaus. However, the lender puts the money in a restricted savings account. You can obtain the money from the savings account after you finished paying off the loan.
Payday Alternative Loans
This type of loan costs less than a conventional payday loan and provides you more time to repay. Credit unions – the institutions offering payday alternative loans – also don’t perform credit checks when you apply for this loan.
However, one requirement is that you must apply for membership and become a member of the credit union for a month before applying for payday alternative loan. Loan fees for this type of loan range from $10 to $20, and you have to pay the loan off from 1 to 6 months.
Traditional Payday Loans
Traditional payday loans are short-term loans that don’t require the borrower to have an established credit history, as long as he/she has a regular income and a bank account. But lenders that offer traditional payday loans charge higher fees and interest rates that are equivalent to annual percentage rates (which go up to 400 percent).
Moreover, if you fail to pay the loan on time, chances are you may have to pay additional fees for a loan renewal. The high fees and interest rates plus the possibility to renew the loan repeatedly is the reason why payday loans should only be a last resort. You can check out sites like SiLoans if you want to learn more about payday loans.
Federal Housing Administration Loans
Apply for a Federal Housing Administration (FHA) loan if you want to get some cash to purchase your first home. FHA doesn’t refuse a borrower a loan even if the latter doesn’t have a credit history. You’re only required to submit some documents that show that you’re a responsible payer, such as bill payments for utilities or rent.
Ask Someone to Become a Co-Signer
Having a co-signer is one of the ways to obtain a loan with a favorable interest rate, especially if you have no credit history yet. If you get a loan with a co-signer and you pay the loan off, the lending institution where you borrow money will report your payment to major credit bureaus. In this way, you can build your credit score.
Indeed, it’s not easy to apply for a loan if you don’t have an established credit history. But don’t worry because there are some loan options for you. Take note of the five loan options mentioned on this list for that purpose. Keep in mind, though, that some of these loans charge higher interest rates and fees.