Can You Get a Loan at 16? A Guide for Teenagers Seeking Financing

Turning 16 is an exciting milestone. You can finally drive and start gaining more independence. But becoming an adult also comes with more financial responsibility. You may need to buy a car or pay for college. So you might be wondering can I get a loan at 16?

The short answer is yes you can get a loan at 16 with an adult co-signer. Most banks will not approve a loan for someone under 18 without a co-signer. The co-signer assumes responsibility if you cannot repay the debt. But there are options like credit unions and online lenders that offer loans to 16-year-olds.

Getting your first loan helps build your credit history too. Having good credit makes it easier to get approved for financing as an adult. But you need to be careful not to take on more debt than you can handle.

Here is what teenagers need to know about getting loans and other ways to establish credit responsibly.

Can a 16-Year-Old Get a Loan?

Most traditional banks will not lend to someone under 18. Their policy usually requires borrowers to be at least 18 years old. That’s because minors cannot legally enter into financial contracts. But some lenders offer exceptions with an adult co-signer.

Your options for getting a loan at 16 include:

• Credit unions – Many credit unions provide loans for teenagers and young adults. For example, Advantis Credit Union offers Start Personal Loans up to $3,000 for members new to loans. Applicants under 18 need a parent or other co-signer.

• Online lenders – Companies like Upstart and LendingPoint consider applications from 16-year-olds with a co-signer and proof of income. Their underwriting uses more data like education and employment factors.

• Retail financing – Stores may offer their own financing programs that are open to 16-year-olds with a co-signer. For example, jewelry stores, furniture stores, and electronics retailers sometimes provide financing for purchases.

• Auto loans – You can get a car loan at 16 with a co-signer. The co-signer will need good credit and income to potentially qualify for better terms.

• Student loans – Federal student loans require you to be at least 18. But private student loans are available with a co-signer starting at 16. Both parents and grandparents can potentially co-sign student loans.

Building Credit at 16

Getting a loan is not the only way to start establishing credit early. Here are other responsible options to consider:

• Become an authorized user – Parents can add teens as authorized users on their credit card. Use the card occasionally for small purchases and pay it off each month.

• Secured credit card – Banks offer secured cards for people with no credit history. It requires a refundable security deposit that becomes your credit limit. Use it wisely and make monthly payments.

• Retail credit card – Department store cards tend to be easier for new borrowers to qualify for. Use it for essential purchases and pay off the monthly balance.

• Savings account – Have your own savings account by 16. Banks report your activity which helps demonstrate financial responsibility.

• Student credit builder loan – Some credit unions offer loans to help students build credit. You make monthly payments into a share certificate that you receive at the end of the term.

What Do Lenders Look for When Lending to Teens?

Lenders that offer financing to 16-year-olds want to see evidence you can handle the responsibility. They look for things like:

• Co-signer credit score – The higher your co-signer’s credit score and income, the better. Their finances provide the basis for underwriting and terms.

• Income – Part-time job income can help demonstrate your ability to make payments.

• Bank account – Having an active checking/savings account looks more responsible.

• Loan purpose – They’ll want to see you’re borrowing for reasonable expenses like a used car, not wants.

• Payment history – If you have any bills like a cell phone in your name, on-time payments help.

What Are the Requirements to Get a Loan at 16?

The basic requirements for a 16-year-old to get approved for financing include:

• Co-signer – You will need a parent, guardian, or other adult willing to co-sign a loan and take responsibility.

• ID – Identification proving your age, usually a birth certificate, passport, or driver’s license.

• Income – Expect to show current income from part-time work or allowances that covers payments.

• Loan purpose – Be prepared to explain what the loan is for and why you need to borrow.

• Collateral – Loans may require collateral like a car’s title for auto loans or share securing for credit union financing.

How Can You Get a Loan With No Credit History?

Lack of credit history is one of the biggest obstacles for teens qualifying for financing. With no track record, lenders view you as riskier. There are still ways to get approved:

• Add a co-signer – An adult with established credit can help you meet underwriting criteria.

• Apply for student loans first – Federal loans don’t require credit checks. This can help build history.

• Try a secured loan – Letting your savings or asset secure the loan reduces the lender’s risk.

• Ask your bank – A relationship with your bank may improve chances for a first loan.

• Look to credit unions – They may offer more flexibility for members with thin credit files.

• Consider “future income” lenders – Some fintech lenders look beyond just credit history at your earning potential.

Mistakes to Avoid When Getting Your First Loan

It’s easy to make poor choices when borrowing as a teenager. Be proactive about avoiding these common mistakes:

• Don’t take out more than you can afford to repay comfortably. Look for the lowest rates and payments possible.

• Avoid spending loan money on depreciating assets like electronics and clothing that don’t build long-term value.

• Be realistic about what kind of credit and payments you can handle based on your income and experience level. Start small.

• Do not take out loans expecting your parents or others will repay them. Assume you are responsible.

• Read and understand the loan terms and your legal obligations before signing anything. Don’t rush the process.

• Build up savings for emergencies and to avoid constantly needing to borrow for expenses. Live within your means.

• Make every payment on time once you get a loan. Set payment reminders to help build your credit responsibly.

Alternatives to Get Financing Without a Co-signer

While tough for teens, there are still possibilities to explore if you cannot get a co-signer for a loan:

• Ask other potential co-signers like grandparents, aunts/uncles, or family friends you have a good relationship with.

• Shop lenders like credit unions that may be more flexible than big banks.

• Build up your credit first before applying by becoming an authorized user on a parent’s account.

• Open a secured credit card or savings account to demonstrate responsible behavior.

• Wait until you are 18 and have more income to potentially qualify for financing on your own. Two years of credit history helps.

• Save up to buy major items in cash or look for less expensive options you can afford without financing. Sometimes patience pays off.

Wrapping Up

Getting your first loan at 16 teaches valuable lessons about managing debt and personal finance. Just make sure you only borrow what you reasonably expect to afford. Maintain some savings and focus on building credit safely first. While challenging, it is possible to get a loan at 16 with responsible planning and support.