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When you turn 18, you can finally sign contracts that are legally binding, like loan agreements. But here's something no one tells you: just because you have the legal right to borrow money doesn't mean lenders are ready to give you money.
In my years managing sales operations, I've worked with hundreds of young borrowers. The most common thing I hear is, "I just turned 18 and have a job, so why can't I get approved for a $15,000 personal loan?" Lenders aren't being rude; they're just being smart.
Look at it from their point of view. You have never been able to handle debt before. You might be responsible and trustworthy, but how can they know for sure? Without a history of borrowing, you are an unknown risk, and banks don't like unknown risks.
But don't let this get you down. You can get your first loan at 18, and it's one of the best financial decisions you can make. You put off other important life goals every month that you wait to start building credit history.
Federal Reserve Economic Data says that more than 97% of Generation Z living in big cities have some kind of nonmortgage debt, with a median amount of about $16,560. You're not the only one on this journey; lenders have made special products for people who are new to credit.
Life doesn't wait until you're 25 and have a good credit score to give you bills. You can use personal loans to pay for school, buy a car, pay for medical bills, and other big life events.
While I was training loan officers from different markets, I saw something interesting. The young borrowers who did well weren't always the ones who borrowed the most money; they were the ones who borrowed money for things that helped them make more money.
Building a credit history has many benefits.
The three main credit bureaus—Experian, Equifax, and TransUnion—get a report every time you pay on time. Over time, those good reports add up.
Let's go through a real-life example. An 18-year-old gets a personal loan for $2,000 with an 18% APR and a 24-month repayment period. The monthly payment is about $99. If you make all of your payments on time for those 24 months, you will have proof that you can manage your credit responsibly for two full years. By the time you're 20, you have a credit history that most of your friends won't get until they're in their mid-twenties.
Usually, lenders limit first-time borrowers to $1,000 to $5,000, depending on how much money they can prove they have. It becomes very hard to qualify for large amounts without a good credit history.
For young people who don't have credit, interest rates are usually between 15% and 25% APR, while for people who do have credit, they are usually between 8% and 12%. This is what it means.
Because you haven't had time to build credit yet, you're paying an extra $360 in interest.
Generation Z has its own set of financial problems. Experian's 2025 Consumer Debt Study says that Gen Z's average credit card balance is $3,493. The Education Data Initiative says that the average amount of student loan debt is $22,948.
According to a 2025 Newsweek poll, 52% of Gen Z people think about debt most or all of the time. According to data from the Federal Reserve, credit cards should be used with extra care because their interest rates can be as high as 20–24%.
A cosigner agrees to share the responsibility of paying back the loan with you. This isn't just a character reference; your cosigner's credit is checked, their debt-to-income ratio is figured out, and they have to do what they say they will do.
Loan Factor
Without Cosigner
With Qualified Cosigner
Approval Odds
30-40%
75-85%
Interest Rate
22-28% APR
12-16% APR
Monthly Payment ($5,000/36mo)
$183
$172
Total Interest Paid
$1,588
$1,192
Total Savings
—
$396
Best cosigners have credit scores above 670, stable employment for at least two years, debt-to-income ratios under 36%, and clear understanding of their financial risk.
Online lenders specialize in assisting 18-year-olds without credit histories. They look at factors beyond credit scores including education, employment stability, and income trajectory.
Typical parameters include loan amounts from $1,000-$10,000, interest rates of 15-35% APR for no-credit borrowers, terms of 12-60 months, and approval timelines of 24-72 hours.
Credit unions offer lower rates and more friendly terms than most banks. Many have "credit builder" loan products designed for members establishing credit for the first time. Join by opening a savings account with $5-25, then become eligible for borrowing products.
Secured loans require collateral such as savings accounts or vehicles, reducing lender risk. Say you have $1,500 in savings. A lender might offer a secured loan for that amount, placing a hold on your savings. Make all payments on time, and you get your savings back plus positive credit history.
Interest rates on secured loans typically run 5-10 percentage points lower than unsecured options.
Federal student loans don't check credit scores for most loan types. For 2024-2025, dependent undergraduate students can borrow up to $5,500 for their first year. Interest rates are currently 5.50% for undergraduate Direct Loans originated between July 1, 2024, and July 1, 2025 according to Federal Student Aid.
Most teens need a cosigner with good credit (typically 661 or higher) for auto loan approval. Expect interest rates ranging from 8-18% depending on your cosigner's credit and vehicle age.
Adding a teen driver to insurance costs an average of $3,512 annually, according to 2025 Experian data. Budget for loan payments plus insurance, gas, and maintenance.
These products flip traditional lending upside down. Instead of receiving money upfront, you make monthly "payments" into a savings account. After 6-24 months of payments, you access that money plus interest. Meanwhile, those payments have been reported to all three credit bureaus.
Typical credit builder loans range from $300-2,000 with terms of 6-24 months and interest rates of 3-8% APR.
Many retail stores offer cards to young adults with limited credit history. These store-specific cards have lower credit requirements but much higher interest rates (often 25-30% APR).
Use these strategically—buy something you need, pay off the balance immediately when the statement arrives.
Lenders verify employment for the most recent two years and require explanations for any gaps spanning one or more months according to CFPB Appendix Q guidelines.
Qualifying income includes job earnings, spouse's income, self-employment income, public assistance, investment income, insurance payments, alimony, financial aid, and family allowances.
That summer job earning $2,000 monthly plus $500 monthly allowance from parents equals $2,500 in qualifying income. Regular financial aid disbursements count. Consistent side hustle income—document it and most lenders will consider it.
This single metric might be the most important number in your application. Calculate it by adding all monthly debt payments and dividing by gross monthly income.
Example Calculation:
DTI: $400 ÷ $2,100 = 19%
At 19%, you're in excellent shape. Lenders typically prefer DTI ratios below 35-36%, though Fannie Mae's Desktop Underwriter allows up to 50% according to Fannie Mae selling guidelines.
If you need $5,000, consider applying for $3,000 initially. Get approved, make 6-12 months of perfect payments, then refinance or apply for additional credit with a proven track record.
Banks love seeing reserves. That $2,000 in savings tells lenders you could make payments even if you lost your job. Document everything—even small investment accounts or savings bonds.
Personal loan applications involve preapproval (soft credit pull, no score impact), formal application (hard credit pull, document verification), and approval decision (instant to 10 business days depending on lender).
When ready to purchase a home in the future, consider exploring FHA home loans which can accept lower credit scores and down payments as low as 3.5% for qualified borrowers.
Every hard inquiry drops your credit score by roughly 5-10 points. Do all loan shopping within a 14-day period—credit scoring models count multiple inquiries for the same loan type within this window as just one inquiry.
Understanding total loan costs separates smart borrowers from those trapped in expensive debt cycles. APR includes interest plus most fees. Let's look at real dollar amounts:
That 10% difference costs an extra $264. For an 18-year-old who makes $12 an hour, that means about 22 hours of work just to pay the difference in interest.
If you have a $1,000 balance at 24% APR and pay $25 a month, you'll be paying for 62 months and paying $550 in interest, which is more than half of the original amount.
You are now 18 and have a steady job. You could start college full-time next year but with fewer hours. One late payment of 90 days can lower your credit score by 80 to 120 points and stay on your report for seven years.
Put money aside in your budget for payments. If you can pay $200 a month, you might want to borrow an amount that makes your payment $140 instead.
Time is a unique benefit of being young and an adult. The choices you make about borrowing money at 18 will affect your life for decades. If you borrow money for things that will go up in value or investments that will make you money, you are using leverage wisely.
Think about where you want to be when you're 25, 30, and 35. Every loan you take should help you reach those goals.
Getting your first loan at 18 is a big step in your financial life. You're building a credit history that will help you reach bigger goals in your 20s and 30s. But this chance comes with real responsibility.
Loans should have clear goals, like getting to better jobs, getting an education that will help you make more money, or building credit by borrowing small amounts of money and paying it back on time.
Find lenders who work with young people who want to borrow money. Think about AmeriSave when you're ready to buy a home. We know that a lot of younger borrowers need help making their first big financial choices.
Think of every payment as an investment in your future finances. That's exactly what it is.
Yes, but there are fewer choices. You can qualify if you can show that you have a steady income from investments, alimony, financial aid, or other sources of cash flow that can be verified. Lenders need proof that you can make your monthly payments, but that doesn't mean you have to work full-time. Most of the time, you don't need to show proof of income for student loans because they are based on enrollment in school.
For personal loans, you need to show that you get regular deposits from your parents, investments, trust funds, or other sources that can be verified. Some lenders look at how much money students will make in the future if they get a degree in a field that pays well. If you're not working, your best options are federal student loans if you're in school or secured loans that use savings accounts as collateral. Adding a cosigner who is creditworthy greatly increases the chances of getting approved.
There isn't a single minimum credit score requirement because many lenders work with people who have low or no credit. Having no credit score is not the same as having a bad score. Many 18-year-olds do not have a credit score. Lenders who work with young borrowers look at other things, like their level of education, their field of study, their job stability, their banking history showing regular deposits, and their debt-to-income ratio. Some online lenders will give you a loan with a score as low as 300, but you'll have to pay a lot more in interest. Credit unions are usually more flexible than regular banks. Adding a qualified cosigner with a score of 670 or higher greatly increases your chances of getting approved and the interest rates you'll get.
Lenders use a number of different methods. For traditional jobs, you need to show recent pay stubs that cover at least 30 days, W-2 forms from the previous year, or direct contact with your employer to confirm your employment dates and income. Part-time workers may give their employers letters that confirm their job title, hours, and pay rate. If you work for yourself, you need to fill out 1099 forms or tax returns that show you make money all the time.
Bank statements that show regular deposits can prove income from family allowances, investment returns, or other sources. Many families with low or moderate incomes depend on part-time and seasonal work to meet their daily needs. Because of this, creditors should not limit their options based on CFPB rules. If you have more than one source of income, write down each one separately. For example, if you make $1,200 a month from a retail job, $400 from an allowance, and $200 from freelance work, your total qualifying income is $1,800.
This depends on your unique situation. If they have good credit, cosigners can help you get approved and lower your interest rates by 5 to 10 percent. But you need to think carefully about the risks and dynamics of the relationship. If you can't make your payments, your cosigner is legally responsible for the full loan amount. This could hurt your relationship with your parents or family. A cosigner speeds up the process of building credit by years if you are sure you can make all of your payments on time. If you're not sure you can make payments on time every month, it might be better to wait until you qualify on your own, even if it means paying higher rates or smaller amounts. Look into secured loans or credit builder products that don't need cosigners but still let you build your credit history. Some lenders let you release your cosigner after you make on-time payments for 12 to 24 months.
The effect depends on how late you are and your overall credit history. Late payments of less than 30 days usually don't get reported to credit bureaus, but you will have to pay late fees of $25 to $40. If you are 30 days late, the lender tells all three bureaus about the missed payment, which lowers your score by a lot, usually by 60 to 110 points. If you have a thin credit file, one late payment can be very bad. The late payment stays on your report for seven years from the date of the delinquency, but its effect lessens as you build a good history. Damage gets worse after 60 days. In 90 days, you could be in charge-off status, which means that lenders write off your debt and sell it to collection agencies. Your score could drop by more than 150 points, which would make it very hard to get any credit for a long time. If you don't pay your bills, you could end up in court, have your wages garnished, and your cosigner's credit will also be damaged. If you know you'll miss a payment, call your lender right away. Many of them have hardship programs or temporary changes that can help.
Personal loans give you a set amount of money up front and require you to make fixed monthly payments over a set period of time. For example, if you borrow $5,000, you will have to pay it back in 36 monthly payments of $147. You can use, pay off, and use credit cards again and again up to your limit. Credit cards have higher interest rates, usually between 20% and 24%, while personal loans for people with bad credit usually have rates between 15% and 25%. With a personal loan, you know exactly how much you owe each month and when it's paid off. Credit cards are more flexible, but they need more self-control. Personal loans are usually better for big one-time costs like buying a used car or paying for a big medical bill because they have better rates and clear payback dates. Credit cards are better for ongoing costs and building credit by making small purchases every month. A lot of advisors say that young adults should have both a small credit card with a $500–1,000 limit for everyday purchases that are paid off in full each month and access to personal loans for bigger planned expenses.
No. After you turn 18, lenders can't share your financial information with anyone, even your parents, unless you give them written permission. Federal privacy laws, such as the Gramm-Leach-Bliley Act, give you this protection. If parents cosign, they are only legally responsible for paying back the loan. They don't automatically get access to your account portal, statements, or transaction history unless you give them permission. You can usually add them as authorized users through your lender's customer service if you want them to be involved. Some lenders let cosigners access a joint account, but they have to set it up on purpose. If someone cosigned, think about whether you want to give them access to the account right away or promise to talk about the loan status on a regular basis.
Knowing when to ask for credit protects your new credit profile. Hard inquiries usually lower scores by 3 to 5 points each, but they can have a bigger effect on credit files that are very thin. Credit scoring models know that people shop around for rates and count multiple requests for the same type of credit within 14 to 45 days as one request. This means that if you're looking for a personal loan, you can apply with more than one lender in two weeks and it will usually only count as one inquiry. But this exception usually only applies when you're looking for the same type of credit. For example, if you asked for a personal loan, a credit card, and an auto loan all in the same month, that would count as three separate inquiries. If you want to apply for different types of credit, make sure to space out your applications for major credit products by at least 6 to 12 months. Hard inquiries stay on reports for two years, but they only affect scores for the first year.
When lenders say "denial," they mean that you don't meet the minimum requirements for credit and won't give you any amount or rate. Some common reasons are not having enough money to make even the minimum payments, having gaps in employment with no good reason, or having a debt-to-income ratio that is higher than the lender's maximum (usually 45–50%). When lenders offer you higher interest rates (risk-based pricing), it means they will approve you but see you as a higher risk than ideal borrowers. They will change the rates to make up for this. At 18, you probably don't have much of a credit history, so you'll almost always be in this higher-rate group. If you were hoping for a 12% APR but were offered 22%, that's annoying, but it might be fair for first-time borrowers. To see if it's competitive, compare it to offers from two or three other lenders. If you are denied, you have the right to an adverse action notice that explains the main reasons within 30 days.
While approval mostly depends on your personal financial situation, some times are a little better than others. A lot of lenders have yearly or quarterly origination goals, but they might be more flexible at the end of the month or quarter (December, March, June, September). For 18-year-olds, the most important thing is to time your application to show that you are financially stable. Instead of applying during your first week, wait at least 90 to 180 days after starting work. If you are using your student status as a positive factor, wait until the end of the semester. If you get irregular income, like summer seasonal work, apply when your income documentation shows the highest and most stable amounts. If you need to show how much money you made last year, tax season (February to April) can be helpful. It can be smart for students to apply in late summer or early fall, when their financial aid packages are set.
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