Personal Loans for 18-Year-Olds

Name: Personal Loans for 18-Year-Olds
Creator: Savvy
Published: 2021-09-24T11:38:42+09:30

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Written by , updated on July 4th, 2024

As you turn 18 and enter adulthood, you might be looking to take the first steps towards financial independence. If you find yourself with big or unexpected costs to cover but are short on cash, a personal loan might be the way to go. If you are looking for a personal loan, you can compare your options with Savvy. We can compare offers from dozens of lenders across the country, helping you find a deal that best suits your needs.

What are my personal loan options as an 18-year-old?

There are several different options that 18-year-old borrowers can look at when applying for a personal loan. However, because you will generally have a lower income, limited credit history and lack of experience with taking on and repaying debts, lenders will consider you a greater risk. As such, you may have more limited choices compared to an older borrower. When looking at your options, these are some common 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 valuable asset like a car, 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.

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.

How do personal loans work?

Before applying for a personal loan, it’s important to understand how they work – especially if you are applying for one for the first time and are unfamiliar with the process. Here are the steps to getting a personal loan:

Determine your eligibility: you can only get a loan if you meet eligibility requirements. These may vary slightly from lender to lender, but to take out a personal loan in Australia you will need to be at least 18 years old, an Australian citizen or permanent resident and employed and/or receiving a steady income of at least $20,000. Many lenders also have credit score requirements.
Compare your options: not all lenders and loans are the same, so it’s important to shop around to find a deal that suits your needs and circumstances – especially if you are an 18-year-old with limited resources. Some lenders are hesitant to lend to younger borrowers, but there are still many offers available. Comparing them through Savvy allows you to find the best personal loan for your situation.
Apply and get approved: you will need to complete an application form and submit various documents to prove who you are, where you live and how much you earn. This can include driver’s licence, passport, utility bills, bank statements and payslips. If you pass the lender’s checks, you will be approved for the loan.
Receive funds: once approved, you will receive your money as a single lump sum into your bank account, often within 24 hours. Once you have the funds, they are yours to use as you wish.
Repay your loan: you will need to repay your loan in weekly, fortnightly or monthly instalments over a set period of time, normally between one and seven years. There is not usually a grace period, so you will need to start making payments straight away.

Are there any extra costs when I take out a personal loan?

Taking out a personal loan can be quick and easy – but it’s not free money. As well as paying back the full amount you borrowed, you will also have to pay:

Interest: this is a percentage of the loan amount charged by your lender – essentially a fee for borrowing the money. The higher your interest rate, the more you pay. Interest rates vary depending on your lender and risk profile, but as a younger lender you will generally face higher interest rates. Here’s an example of how interest rates can impact your loan cost:

You take out a loan for $6,000 to be paid back over five years. The interest rate is 15%. Over the course of the loan, this means you will pay a total of $2,564 in interest on top of your loan. This means that you will pay a total of $8,564 for a $6,000 personal loan.

Rates also depend on whether your loan is fixed rate – where interest is fixed from the outset and remains the same throughout the term – or variable rate – where the interest fluctuates depending on market conditions.

Fees: most personal loans also have fees that you must pay, from one-off payments such as establishment fees to monthly maintenance fees. It’s important you are aware of all these costs when signing up to a loan.

Together, the interest and fees you will pay are known as the comparison rate. Using the comparison rate to calculate your loan costs will give you a better idea of the true cost of your loan over its lifetime.

What can I use my personal loan for?

When you take out a personal loan, you will generally be able to use the funds any way you choose. You could put the money towards one big expense or spend it on several different things. This could include:

Educational costs: if you are a student, a personal loan can help you cover educational expenses over the course of your studies. This can be anything from student accommodation, textbooks, laptops, transport to and from your educational institution or anything else.
Moving house: now that you are an adult or perhaps because it’s necessary for university or work, you might be considering moving out of your parents’ home and setting up on your own or with friends. While this can be an adventure, moving can be expensive, from putting down deposits, hiring removalists or buying furniture for your new home. A personal loan can help you cover relocation costs.
Medical expenses: medical and dental costs can be high, whether it’s surgery or braces to straighten your teeth. If you find yourself needing medical treatment or you have a procedure you want to undertake, a personal loan can help you fund it.
Holiday: maybe you’re planning on doing some backpacking or want a week away with friends – whatever your holiday dreams, a personal loan can help you get there if your savings aren’t enough. You could use a travel loan to cover ticket costs or to ensure you have enough spending money while you’re away – or spend it any other way you choose!

Types of personal loan

Unsecured personal loans

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

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 rate personal loans

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 rate personal loans

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.

Debt consolidation loans

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.

Travel loans

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.

Wedding loans

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.

Renovation loans

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.

Self-employed loans

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.

Student & education loans

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.

Green loans

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.

Why compare personal loans through Savvy?

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How to increase your personal loan approval chances

Hold steady employment

Submit your application with a guarantor

Find a co-borrower

Build your personal savings

Apply for smaller amounts

Hold steady employment

Submit your application with a guarantor

Find a co-borrower

Build your personal savings

Apply for smaller amounts

Frequently asked questions about personal loans for 18-year-olds

Can I get a personal loan if I’m under 18 years old?

No – in Australia you must be at least 18 years old to take out a loan of any kind. If you are 17 or below and in need of cash, you may want to consider talking to family or getting a part-time job to help you achieve your financial goals.

Can I count Centrelink benefits as part of my income?

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.

What happens if my application is rejected?

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.

How long can I take to repay my loan?

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.

Can my employer help me get approved?

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.

What documents will I need to apply for a personal loan?

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

Am I able to refinance my personal loan later?

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.

Can I buy a car with my personal loan if I am 18 years old?

You can put your unsecured personal loan towards a car – but if you are looking to buy a vehicle, a secured car loan may be a more practical option. This is because secured car loans often have lower interest rates and better terms, as the car itself serves as collateral for the loan.