When a person reaches the age of majority, a world of possibilities opens up before him. Many are excited to finally be able to decide for themselves many things that as a teenager were not yet allowed to be decided. Most age limits are then exceeded. As a person with legal capacity, for example, a loan for an 18-year-old can be applied for both with or without collateral.
As a young adult, there are often major purchases ahead. However, financing them is not always easy. Have you recently turned 18 and are looking for the right consumer loan for your situation? In that case, this article is just for you.
Loans to 18-year-olds: Find out the terms of the loan carefully
First of all, it is worth looking more closely at what a person applying for a consumer loan commits when signing a loan agreement. These loans have one special feature that is also partly the reason for their high prices. Where a secured loan is granted against the property to be purchased (house, car, boat, etc.), a consumer credit is granted without consideration. In other words, the bank takes into account the personal finances of the borrower when deciding whether to grant a loan or reject an application.
The fact that the bank does not require collateral for the loan mainly means one thing: In consumer credit, the interest rate remains significantly higher than in secured loans. The lender takes a higher risk, which in turn is reflected in the interest rate.
As a rule of thumb, you can also say that the smaller the amount of the loan, the higher its interest rate. Therefore, so-called microloans, loans of around EUR 100-500, can bear interest rates of up to several hundred percent.
There are two things to consider when applying for a loan for an 18-year-old. The first is the interest rate on the loan and the second is the various fees charged in addition to the interest.
Interest rate : The interest rate can be expressed as either a nominal interest rate or an effective interest rate. In most cases, banks advertise a nominal interest rate, when in fact the borrower actually pays an effective interest rate.
Fees : The most common consumer loan payments are the set-up fee (a one-time payment at the beginning of the loan period) and the account management fee (monthly management fee).
Why are there so few options available for 18 year olds?
There are very few options available for 18-year-olds interested in applying for consumer credit. The reason for this is easy to explain by looking at how many 18-year-old Finns are financially independent today. Remember that the bank must ensure that you can repay your loan alone and with your income.
Work alongside studies is a fairly common phenomenon, but the fact is that few young people studying in high school or vocational school are able to demonstrate the regularity of their income. As a result, the risk of granting a loan to an 18-year-old is significantly higher.
In addition, the bank must take other risk factors into account when processing loan applications. Statistically, young people are significantly more volatile customers than older and already established people. Young people change jobs more often, rarely own their own home and move more often.
In short, the applicant’s finances must be on a sound footing in order to obtain a loan without collateral. Are you around the age of 18 and want to apply for a consumer loan? Ideally, you should have had a job for some time, but at a minimum, you should be able to demonstrate a reliable income.
Credit check of 18-year-old applicants
All banks that provide consumer credit and financial companies perform credit checks on applicants. The purpose of a credit check is to clarify two things. First, the financial institution surveys the applicant’s financial situation. Second, it wants to look at the applicant’s credit history, which includes, in addition to income level, any default entries and other liabilities.
In Finland, it is illegal to grant loans or credits to minors and creditworthy persons. Therefore, you too will probably have a completely “clean” credit history when you turn 18 years old. However, that is not automatically a positive thing. An applicant without a history is not the same as a good history, but it only makes it difficult to assess the economic situation.
If you are 18 years old and would like to apply for a consumer loan, you can expect to receive several follow-up questions with your application. In this case, of course, it is a precondition that the bank considers your application at all. In certain situations, it may be a good idea to first call the loan company from which you want to apply for a loan. Unclear points can be clarified over the phone to streamline the loan application process.
Note the effect of the repayment period
There is one more condition that must be considered when applying for a loan for an 18-year-old. This is the loan repayment period. New consumer loans typically have a loan period of 1 to 5 years. Depending on the amount of the loan, the length of the loan period can have a significant effect on the total cost of the loan.
Consumer credit has a structure similar to an annuity loan. In such a loan, interest expense is calculated on the overdue debt during each period or month. The longer the loan is repaid, the more times this calculation is performed and the more interest the loan will eventually have to pay.
Like many other financial experts, we recommend the most efficient repayment possible that
minimizes the cost of borrowing.
For example, in a loan of EUR 5 000 at a nominal interest rate of 16%, the difference between a one-year and a five-year loan period is as follows:
1 year
- Loan amount: EUR 5,000
- Effective interest rate: 22.36%
- Processing fee: 740 euros
- Borrowing costs: EUR 568
- Total costs: EUR 5 568
5 years
- Loan amount: EUR 5,000
- Effective interest rate: 19.70%
- Processing fee: 740 euros
- Borrowing costs: EUR 2,638
- Total costs: EUR 7 638
As can be seen from this example, the repayment period of a loan has a large effect on the total cost of the loan. The larger the loan amount, the greater this difference. Regardless of the applicant’s age, this should be noted in good time before any contract is signed.
As a young adult, getting a loan is not quite self-evident, but on the other hand, it is also not impossible. In particular, smaller loan amounts in the form of quick leverage are realistically within the applicant’s reach. However, those who need larger sums will have to do a little more preparation and undercover work than usual to get the loan in order.
