Loans which are made by signed agreements between two parties--a lender and a borrower--can only be entered into if each party is legally permitted to enter into a contract. If either party is not legal, the contract is not binding. The legal age in nearly all states is 18. (The few exceptions with slightly higher limits are Alabama, Nebraska and Mississippi, along with Puerto Rico.)
All lenders seek to have loans repaid, and the borrower should have an acceptable history of responsible borrowing. For a first-time borrower, there may be no history. Some lenders carefully extend loans to new borrowers, but may require a co-signer.
When a person who is not of legal age seeks to borrow money by written agreement, lenders will require the co-signature of an individual who is of legal age. This individual's creditworthiness will also be evaluated.
Lenders avoid risk by restricting lending only to those who can legally borrow money and have acceptable credit. New, inexperienced borrowers are typically considered a higher risk, and underage borrowers usually have no history of credit repayment. Once again, a minor cannot enter into binding agreements.
Underage borrowers who require a co-signature must be able to assume the responsibility of loan repayment without placing an undue burden on the co-signer. Likewise, the co-signer must also take into consideration the potential risk he is assuming by making a guarantee for the borrower. The co-signer will be held ultimately responsible.
An underage borrower will not likely have any credit history. Borrowing with a co-signer allows the opportunity to establish a record of successful loan performance. Once of legal age, the borrower will be able to further build credit on his or her own.