When you’re young, getting a foot on the financial ladder can be difficult. Whether you’re looking to leave home for the first time or you’ve only just left university, there are plenty of things you need to consider. Financial concerns are usually at the top of most people’s lists, and many young people worry that they will struggle, not necessarily in terms of the money they earn, but in terms of being able to access and use credit.
What Can Young People Do?
One concern for many young people is that they may be unable to access a personal loan due to a lack of credit history. While a lack of credit history can be a problem, lenders understand that young people need to open their first credit account at some point, so personal loans and other credit products may still be available to young people. As the lack of a credit history means a lender cannot assess the risk they are taking, young people may only be able to borrow up to a certain amount, or be subject to a higher rate of interest to balance off the risk to the lender.
A number of loan options may be available to young people to help them get on the financial ladder and start taking their first steps into adult life.
Credit Cards vs. Personal Loans
Other forms of lending that may be available to young people include credit cards, or hire purchase agreements if they’re looking to purchase a car. Credit cards are the most common method of borrowing in Australia, and while they can offer a useful financial solution for young people, there is much to consider before applying for and using one. Among the things to think about as a young person seeking credit are:
- Due to your lack of credit history, you may only be able to access a very small credit limit.
- If you have no experience of managing finances thus far in your life, having to deal with and manage credit card spending and repaying the balance on a regular basis can be difficult to get to grips with.
- As with a personal loan, you may be subject to a higher interest rate as lenders look to offset their risk.
At the same time, we have to accept that you need to become proficient at managing your finances at some point, and it is better to do that with a credit card with a $300 credit limit than a $3000 one. Showing you’re a reliable borrower with credit cards from a young age is also great for building up your credit history, and eventually you will be able to access a higher credit limit and a lower interest rate.
What benefits might a personal loan offer as an alternative to a credit card for a young person?
‘For some people, it is difficult to understate the benefits of a personal loan when you consider their flexibility. Not only can you apply to set the loan amount to the value you need, you can also seek a repayment term to meet your financial circumstances.”
You Can Get Everything at Once
If you’re in a situation where you’re moving into your own accommodation for the first time it can be daunting to consider all the things you need to buy. First you have the deposit and the first month’s rent, then you have all the furniture you need, and that’s before you’ve set up payments for utilities and thought about your regular grocery shop. When you then realise you need to buy some new clothes for the dream job you finally landed, the reality of the ‘real world’ can fast hit home.
If you were to use a credit card, you’d may have a low credit limit and only be able to buy a few things at a time. In contrast, with a personal loan you may be able to work out what you need, look to take out a loan for an amount to cover it, get everything you need, and get on with your life while repaying the loan. Any anxiety you have about moving on with your life could soon be forgotten, and if you keep up with your loan repayments you’re likely to quickly build up a favourable credit history, too.
The Flexible Nature of Personal Loans
For some people, it is difficult to understate the benefits of a personal loan when you consider their flexibility. Not only can you apply to set the loan amount to the value you need, you can also seek a repayment term to meet your financial circumstances. While you may need longer to pay and thus end up paying more back in interest than you’d ideally like, you are likely to be proving yourself to be a reliable borrower and should avoid overextending yourself financially during your loan term.
Whatever the type of loan you use, being a responsible borrower in your younger years can enable you to build up your credit history to the point you will be able to access a wider variety of credit products, and of a higher value, later in life.
If you would like to discuss the types of loans available to you from [name], contact us now to speak to one of our personal loan experts.
DISCLAIMER: This article contains factual information and general comments only so does not take into account your objectives, financial situation or needs. Before taking any action, consider the appropriateness of this information having regard to your individual circumstances and always obtain and consider relevant disclosure documents before applying for a particular product.