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Loans for Young People in the UK: What You Need to Know

Loans for Young People
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Table of Contents Hide
  1. Loan Types for Young People in the UK
    1. #1. Student Loans
    2. #2. Start-Up Loans (For Young Entrepreneurs)
    3. #3. Guarantor Loans (For Those Without Credit History)
    4. #4. Short-Term Personal Loans (For Emergencies)
    5. #5. Credit Builder Loans (To Improve Credit Score)
    6. Case Study 1: Student Loan for Higher Education
    7. Case Study 2: Business Loan for a Young Entrepreneur
    8. Case Study 3: Guarantor Loan for a Young Professional
  2. Common Challenges Young People Face in Securing Loans 
    1. #1. Lack of Credit History
    2. Solutions to Build Credit
    3. #2. Low or Irregular Income
    4. #3. High Interest Rates on Short-Term Loans
    5. #4. Guarantor Requirement for Many Loans
  3. Alternatives to Loans for Young People
    1. #1. Government Grants & Support
    2. #2. Scholarships & Bursaries for Students
    3. #3. Interest-Free Credit Union Loans
    4. #4. Gig Work & Side Hustles
  4. Tools & Resources for Comparing Loans
    1. #1. Loan Comparison Websites
    2. #2. Credit Score Checkers
    3. #3. Budgeting & Loan Calculators
  5. FAQs About Loans for Young People
    1. Can I Get a Loan If I Have No Credit History?
    2. What’s the Best Loan for a Young Person With No Job?
    3. Are There Any Interest-Free Loans for Young People?
  6. Key Takeaways
  7. Conclusion
    1. Related Articles
    2. References
    3. Related

Getting access to financial support as a young person in the UK can be challenging. Whether it’s for education, starting a business, buying a car, or covering essential living costs, finding the right loan can feel overwhelming. I remember navigating this space myself, trying to figure out which options were available and the best choice for my future. Fortunately, there are several loans designed specifically for young people to help them achieve their financial goals without falling into unnecessary debt.

According to the Financial Conduct Authority (FCA), young people in the UK are increasingly using credit, with over 60% of 18-24-year-olds relying on some form of borrowing. Understanding the right loan options, interest rates, and eligibility requirements can make all the difference in making smart financial decisions.

In this guide, I’ll break down loans for young people in the UK, including eligibility criteria, available options, and frequently asked questions to help you make the right choice.

Loan Types for Young People in the UK

Young people in the UK have access to different types of loans depending on their financial needs, whether for education, business, emergencies, or personal use. Below is a breakdown of the most relevant loans, their eligibility criteria, benefits, and potential drawbacks.

#1. Student Loans

What It Covers:

  • Tuition fees for undergraduate and postgraduate studies.
  • Maintenance costs (accommodation, books, transport, and living expenses).
  • Additional study-related expenses (disability support, childcare, etc.).

Eligibility:

  • You must be a UK resident or have settled status.
  • Enrolled in an approved higher education course at a UK university or college.
  • Available to students under Plan 1, Plan 2, or Plan 5 repayment schemes.

Repayment Terms:

  • You only start repaying when your income exceeds £27,295 per year (for Plan 2 loans).
  • The repayment is deducted automatically from your salary.
  • The loan balance is written off after 30 years if not fully repaid.

Pros & Cons:

✔ Pros:

  • No upfront payment is needed for tuition fees.
  • Income-based repayments mean you only pay when earning above the threshold.
  • Lower interest rates compared to personal loans.

✖ Cons:

  • The total amount repayable increases due to interest accrual.
  • Can take decades to repay, depending on career earnings.

#2. Start-Up Loans (For Young Entrepreneurs)

Who It’s For:

  • Young entrepreneurs aged 18-24 looking to start or expand a business.
  • Applicants with a solid business plan but lacking initial capital.

Loan Amount & Terms:

  • Loan amount: £500 – £25,000
  • Fixed 6% interest rate per annum.
  • Repayment period: 1-5 years.
  • No early repayment penalties.

Key Benefits:

  • Comes with free mentoring and business advice.
  • No need to have a high credit score to apply.
  • Flexible repayment terms make it easier for start-ups.

Pros & Cons:

✔ Pros:

  • Government-backed scheme, making it safer than private loans.
  • Access to additional support like mentoring.
  • No need to give up equity in your business.

✖ Cons:

  • Requires a detailed business plan and financial projections.
  • Limited to UK-based businesses.

#3. Guarantor Loans (For Those Without Credit History)

Who It’s For:

  • Young people who don’t qualify for traditional loans due to a lack of credit history.
  • Individuals who have a trusted family member or friend willing to act as a guarantor.

How It Works:

  • A parent, relative, or friend co-signs the loan agreement.
  • If the borrower misses payments, the guarantor becomes legally responsible for repayment.
  • Loan amounts range from £1,000 – £15,000 with repayment terms of up to 5 years.

Pros & Cons:

✔ Pros:

  • Higher approval chances even with a poor or no credit history.
  • Interest rates can be lower than payday or short-term loans.
  • Builds credit history when repaid responsibly.

✖ Cons:

  • If repayments are missed, it damages both the borrower’s and guarantor’s credit scores.
  • Requires a trustworthy guarantor with a good financial background.

#4. Short-Term Personal Loans (For Emergencies)

Who It’s For:

  • Young people who need quick access to cash for unexpected expenses.
  • Borrowers who don’t qualify for credit cards or overdrafts.

Loan Amount & Terms:

  • Loan range: £100 – £2,500.
  • Interest rates vary (often 15%-50% APR or higher).
  • Repayment periods range from 3 months to 2 years.

Use Cases:

  • Emergency car repairs (if a young worker relies on transport for their job).
  • Medical expenses not covered by NHS services.
  • Unexpected travel costs (family emergencies).

Pros & Cons:

✔ Pros:

  • Fast approval times (some lenders provide funds within 24 hours).
  • Available to borrowers with low or no credit history.
  • No long-term financial commitment (repayment is short-term).

✖ Cons:

  • High interest rates can lead to expensive repayments.
  • Can trap borrowers in a debt cycle if not managed responsibly.

#5. Credit Builder Loans (To Improve Credit Score)

Who It’s For:

  • Young people new to credit who want to establish a positive credit history.
  • Individuals are rejected by mainstream lenders due to a lack of borrowing history.

How It Works:

  • You borrow a small amount (usually £200 – £1,500) and repay it in monthly installments.
  • Payments are reported to UK credit agencies (Experian, Equifax, TransUnion) to build credit history.
  • After successful repayments, you become eligible for better financial products (e.g., credit cards, lower-rate loans).

Pros & Cons:

✔ Pros:

  • Helps establish a strong credit profile for future borrowing.
  • No need for a guarantor or collateral.
  • Often has lower interest rates than payday loans.

✖ Cons:

  • Doesn’t provide immediate cash (funds are often released after the loan is repaid).
  • Interest rates may be higher than standard personal loans.

Here’s how young people in different financial situations can use loans to their advantage:

Case Study 1: Student Loan for Higher Education

Sophie, an 18-year-old student from Manchester, secured a student loan through Student Finance England. She was worried about tuition costs and rent while studying in London. Her tuition fees (£9,250 per year) were covered by the Student Loans Company (SLC), and she also received a maintenance loan of £8,700. Without this funding, she wouldn’t have been able to afford university.

💡 Takeaway: Student loans make higher education accessible, and repayments are linked to future income, making them manageable.

Case Study 2: Business Loan for a Young Entrepreneur

Daniel, 22, had a business idea for a sustainable fashion brand. He applied for a Start-Up Loan from the British Business Bank, receiving £10,000 at a 6% fixed interest rate. The funding helped him launch his website, source eco-friendly materials, and pay for marketing.

💡 Takeaway: Government-backed Start-Up Loans provide young entrepreneurs with affordable financing and business mentoring.

Case Study 3: Guarantor Loan for a Young Professional

James, 21, had no credit history but needed £2,500 for a car deposit to start a new job. His mother acted as a guarantor, allowing him to secure a guarantor loan with a 9% interest rate instead of the 25% APR he was originally offered.

💡 Takeaway: Guarantor loans help young people get approved for financing without a credit history.

Common Challenges Young People Face in Securing Loans 

Young people in the UK often struggle to access affordable loans due to financial inexperience, limited credit history, and strict lending criteria. Below are some of the most common challenges and solutions to overcome them.

#1. Lack of Credit History

Most lenders use credit scores to determine eligibility for loans. Many young people, especially those under 25, haven’t had the opportunity to build a strong credit history because:

  • They have never taken out a credit card or loan before.
  • They have a thin credit file, meaning they have too few credit accounts for lenders to assess their financial reliability.
  • Some buy-now-pay-later (BNPL) services (e.g., Klarna) don’t report repayments to credit agencies, so they don’t contribute to credit building.

How It Affects Loan Approval

  • Without a credit score, lenders classify young applicants as high-risk.
  • Higher risk means higher interest rates or loan rejections.

Solutions to Build Credit

1. Get a Credit Builder Loan
  • Available from credit unions and online lenders.
  • Instead of receiving money upfront, you make monthly payments first, and the loan funds are released afterwards.
  • Your payments are reported to Experian, Equifax, and TransUnion, improving your credit score.

💡 Example: Credit builder loans from LOQBOX and Salad Money are designed for young borrowers.

2. Apply for a Secured Credit Card
  • Requires a small refundable deposit, which becomes your credit limit.
  • By using it for small expenses and paying off the balance in full every month, you build a positive credit history.
  • After six months of responsible use, you may qualify for a standard credit card.

💡 Example: Barclaycard and Capital One offer credit-building credit cards for beginners.

3. Register on the Electoral Roll
  • Lenders check your address history to confirm your identity.
  • Registering to vote through GOV.UK can boost your credit score and improve approval odds.

💡 Tip: Even if you don’t want to vote, registering for the electoral roll helps build trust with lenders.

#2. Low or Irregular Income

Many young people don’t have a stable full-time income, which makes lenders question their ability to repay loans.

  • Students and part-time workers often don’t earn enough to meet the minimum income threshold for many lenders.
  • Gig economy workers (Uber, Deliveroo, Fiverr freelancers) may have inconsistent income, making it harder to prove financial stability.

How It Affects Loan Approval

  • Lenders usually require a minimum monthly income (often around £1,000 – £1,500) before approving a loan.
  • With no steady paycheck, applicants may get rejected or charged higher interest rates.

Solutions for Low-Income Borrowers

1. Look for Lenders That Accept Benefits or Side Income
  • Some lenders consider government benefits, Universal Credit, or student maintenance loans as valid income sources.
  • If you have a second source of income (e.g., gig work, freelance jobs, part-time employment), provide proof through bank statements or invoices.

💡 Example: Some credit unions and online lenders, like Koyo Loans, accept alternative income sources.

2. Use a Co-Signer or Guarantor
  • If your income is too low, some lenders allow a co-signer with a stable income to increase your approval chances.
  • A co-signer can be a parent, relative, or friend with a good credit history.

💡 Tip: Guarantor loans (like Amigo Loans or Buddy Loans) allow young people to borrow without meeting strict income requirements.

3. Get a Part-Time Job to Strengthen Your Application
  • Even a temporary or weekend job can boost your earnings enough to meet a lender’s requirements.
  • A consistent monthly salary improves your debt-to-income ratio, making you less risky to lenders.

💡 Tip: Platforms like Indeed, StudentJob UK, and Gumtree list part-time roles for students and young workers.

#3. High Interest Rates on Short-Term Loans

  • Young borrowers without credit history often only qualify for high-interest loans.
  • Some payday lenders exploit young people, offering loans with APRs over 1,000%.
  • Many people focus on the monthly payment instead of checking the total cost of borrowing.

How It Affects Loan Approval

  • Low-credit borrowers may only qualify for loans with high APRs (above 40%).
  • Short-term loans may seem affordable at first but lead to a debt trap.

Solutions to Avoid High Interest Rates

1. Use a Loan Comparison Tool
  • Sites like MoneySuperMarket, ClearScore, and Compare the Market show the best rates based on your credit profile.
  • Avoid lenders that don’t show interest rates upfront—this is a red flag.

💡 Tip: Always compare at least three lenders before taking out a loan.

2. Borrow from a Credit Union Instead of a Payday Lender
  • Credit unions offer lower interest rates (often 3-12% APR) compared to payday loans.
  • They don’t require perfect credit and focus on affordability.

💡 Example: London Mutual Credit Union offers loans for young people at lower rates than traditional lenders.

3. Improve Your Credit Before Applying
  • If possible, wait a few months and increase your credit score before applying.
  • Paying off small debts (like phone bills or BNPL payments) can boost your score quickly.

💡 Tip: Set up automatic payments for bills to avoid missing due dates.

#4. Guarantor Requirement for Many Loans

  • Many lenders require a guarantor for young people under 21 or those with no credit history.
  • Not everyone has a family member or friend willing to co-sign a loan.

How It Affects Loan Approval

  • Without a guarantor, many young people can’t access affordable loans.
  • Some lenders won’t approve loans over £3,000 without a co-signer.

Solutions to Get a Loan Without a Guarantor

1. Try Credit Union Loans
  • Many credit unions offer no-guarantor loans with reasonable interest rates.

💡 Example: Manchester Credit Union provides unsecured loans for young workers and students.

2. Use a Peer-to-Peer (P2P) Lending Platform
  • Platforms like Funding Circle and Zopa connect young borrowers directly with investors.
  • P2P lenders are often more flexible than banks.

💡 Tip: P2P loans still require a credit check, but they have lower approval barriers.

Alternatives to Loans for Young People

Loans aren’t the only way for young people to access financial support. Here are some non-loan funding sources to consider:

#1. Government Grants & Support

  • New Enterprise Allowance (NEA) – Up to £1,274 for young entrepreneurs.
  • Prince’s Trust Enterprise Programme – Grants and mentoring for 18-30-year-olds starting a business.
  • Apprenticeship Grants – Help for young people entering skilled trades.

💡 Tip: Check GOV.UK for business and education grants that don’t require repayment.

#2. Scholarships & Bursaries for Students

Universities and charities offer bursaries based on academic merit or financial need.

💡 Tip: Visit Scholarship Hub UK to find non-repayable grants.

#3. Interest-Free Credit Union Loans

Many UK credit unions provide small, interest-free loans to members.

💡 Tip: Credit unions focus on financial education, so they’re a safer alternative to payday loans.

#4. Gig Work & Side Hustles

Instead of borrowing, young people can explore flexible income streams:

  • Freelancing (Upwork, Fiverr) – Graphic design, writing, coding.
  • Delivery Jobs (Deliveroo, Uber Eats) – Quick earnings with no formal experience.
  • Reselling Items Online (Depop, eBay, Vinted) – Turning hobbies into income.

💡 Tip: A side hustle can reduce reliance on borrowing while building valuable skills.

Tools & Resources for Comparing Loans

Using the right tools can help young people make smarter financial decisions before taking out a loan.

#1. Loan Comparison Websites

  • MoneySuperMarket – Compare loans based on interest rates and eligibility.
  • Compare the Market – Find low-interest loans and check approval chances.

#2. Credit Score Checkers

  • Experian UK – Free credit score checks.
  • ClearScore – See your credit report and suggestions for improvement.

#3. Budgeting & Loan Calculators

  • GOV.UK Budgeting Calculator – Helps assess loan affordability.
  • MoneyHelper Loan Repayment Calculator – Estimates monthly payments and total interest.

💡 Tip: Always compare multiple lenders before applying to avoid high-interest traps.

FAQs About Loans for Young People

Here are some key questions young borrowers often ask:

Can I Get a Loan If I Have No Credit History?

Yes, but options are limited. Try:

  • Guarantor loans
  • Credit union loans
  • Credit builder loans

What’s the Best Loan for a Young Person With No Job?

Most lenders require some form of income, but you might qualify if you:

  • Receive Universal Credit or student finance
  • Have a co-signer

Are There Any Interest-Free Loans for Young People?

Yes! Options include:

  • Prince’s Trust Loans
  • Credit Union Loans
  • Student Finance England Tuition Loans

Key Takeaways

  1. Young people in the UK have various loan options, including student loans, personal loans, and start-up loans.
  2. Interest rates and eligibility depend on credit history, income, and whether a guarantor is involved.
  3. Government-backed loans, such as Start-Up Loans, offer lower interest rates and added support.
  4. Car financing options like HP and PCP help young people spread the cost of purchasing a vehicle.
  5. Understanding loan terms and repayments is crucial to avoid unnecessary debt.

Conclusion

Navigating loans as a young person in the UK can be challenging, but understanding your options helps you make informed decisions. Whether you’re looking to fund your education, start a business, or build your credit score, there are loans available to support your journey. Have you explored all your options before applying for a loan?

References

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