40 and 50 year mortgages have been touted recently as a strong alternative to interest only loans and even standard 30 year mortgages. While in some cases these claims can definitely be true, it is also very important that you understand what you are getting into.

A 50 year mortgage is extremely unique compared to a 30 year. This is because of the method that banks use to calculate interest accrual. In basic terms, the interest that you will pay over 50 years is far in excess of the interest that you will pay over 30 years. Practically, this means that the vast majority of the money that you put toward your  mortgage is in the form of interest, and not principal, payments. Because of this, many people have compared a 50 year mortgage to an interest only mortgage even though 50 year mortgage rates are comparable to standard rates. Check online for a 50 year mortgage calculator and compare how they would work in your situation, against a shorter term loan.

Is a 50 year home mortgage superior to an interest only mortgage?

This can be a difficult question to answer. 50 year mortgages are advantageous in some respects. Even though you are paying scarcely little of it, you actually are putting money toward your principal every month. Additionally, there is no balloon payment of any sort. The fact is, however, that people who are after a 50 year mortgage may be fooling themselves. It is almost inconceivable to make mortgage payments for the next 50 years, especially considering that the payments on a 50 year mortgage are barely lower than on a 30 year. An interest only mortgage forces the borrower to conceive a plan of action for dealing with the balloon payment, which usually ends up with either moving at the end of the interest only loan or refinancing to a standard mortgage. A 50 year mortgage, on the other hand, barely reduces the outstanding balance of the loan and is difficult to refinance.

Who is a 50 year mortgage for?

Since the banks have run into so much trouble with interest only and adjustable rate mortgages, they have been shy to offer these options to prospective home owners in recent years. 50 year mortgages, on the other hand, are starting to be seen as a realistic alternative in the banking community. Because a 50 year mortgage is extremely similar to an interest only loan, it may be worthwhile for a new home owner to pursue this type of loan if the banks are not offering any other options. Your payment on a 50 year fixed mortgage will be lower than on a fixed rate 30 year mortgage, so if the monthly payment (and not the total interest paid) is your primary concern, you may wish to seek a 50 year mortgage.

These loans work on quite a simple basis. They issue you a loan after you write them a check from your bank account as collateral to be used after your next payday in the case that you do not pay. With loan fees and the native interest rate, these companies generally tend to average an annual percentage rate on loans issued in excess of 100%.

Most people would never pay a credit card that charged 100% interest, but unfortunately these are the rates that these companies are getting away with. It is recommended that you seek out one of these loans only if you are in extremely dire circumstances and the money cannot wait. For many people, these emergency situations can crop up on a near-monthly basis, so here are some tips to avoid being charged usurious interest rates:

Attempt to go through a reputable bank for a credit card. Although credit cards charge very high interest for people with poor credit, this interest rate will be much lower than the rate on a personal loan. As long as you have some income, you will likely receive a credit card with a low limit and a high interest rate. Still, this card’s terms are likely to be a great deal better than the terms you can receive on a personal loan.

Build your credit with secured loans. It is very difficult to get a secured or unsecured loan with poor credit. If you are able to save up as little as $250, many banks will offer to issue you a secured credit card or secured personal loan. They will take your money and issue you a card or loan in the same amount as your savings which you can use like normal credit. With a secured loan, your credit will begin shooting up in as little as three months.

If you do end up using a personal loan for people with poor credit, make sure you do not default on it. Since they will have access to your bank account, it is extremely difficult to avoid paying these loans off. If you do end up defaulting on the loan, they will begin adding charges that will end up costing more than the face value of the loan.

An unsecured personal loan is when you are lent a sum of money without having to have any collateral in exchange. In comparison,  a secured personal loan works like this:

You have a sum of money (in the past, objects like jewelry, gold bars, and even valuable guitars could be used. However, today these types of loans will require cash if you go through a national bank. You may explore other options with your local credit union or lender) that you wish to use as collateral for a secured loan.

You open a new savings account with the bank that is issuing the loan.

You deposit the money in the savings account.

The savings account is used as collateral for your personal loan on a dollar to dollar basis.

For example, if you have $5,000 saved up, the largest loan you could receive at most banks is $5,000. There are some banks that will loan you a certain percentage over your collateral amount, but these banks are quite rare and their policies are ever-changing.

You will have to pay interest and make monthly payments on your new secured personal loan. Additionally, you likely will not be able to access your savings account until you have paid off your personal loan in its entirety. Secured personal loan rates will vary between lenders, and depending on the amount you are borrowing and the collateral you put up, so it pays to shop around online.

So with all of this, why would anybody seek a secured personal loan?

There really is one large reason: these loans are amazing ways to repair your credit. You can have the worst credit rating in the world, and as long as you have the deposit, you have access to a very sizable loan. You are able to get a secured personal loan with bad credit, as the asset you use for collateral reduces the risk to the lender. Your bank will report this loan to the credit reporting agencies as if they gave it to you outright without a security deposit on your part. As long as you pay off your secured personal loan, this goes a very long way to showing other lenders and creditors that you are credit worthy. This is so effective, in fact, that many people who use a secured personal loan see their credit rating go up by hundreds of points over the course of the loan. Additionally, you are subject to very little liability beyond your initial security deposit.

A secured personal loan is an amazing credit repair tool. You can get started with as little as $3,000 saved up with most banks. Some banks even specialize in issuing these loans for as little as $500. One use for a personal secured loan is finance for the purchase of a valuable asset like a new car. Often the item purchased will become the security for the loan.

Will my monthly payment be lower after a debt consolidation loan?

Likely yes, though this will depend on the rate you receive on your consolidation loan. The primary benefits of receiving a debt consolidation loan however are that you only have to deal with one finance company if you have a number of loans and that you free up your credit cards for emergency situations. However, the vast majority of people find that their monthly payment is much lower after receiving one of these loans. Additionally, you reduce your exposure to multiple instances of late charges since you will only have one loan.

Am I a good candidate for a debt consolidation loan?

You will have to take this up with an expert who can analyse your specific case. However, the best candidates for debt consolidation loans typically have three or more credit cards that are nearly maxed out. A debt consolidation loan will allow you to zero out your credit cards and make payments to only one finance company every month. You will also be able to keep your credit card accounts for emergencies.

What will happen to my credit rating?

As with anything else, a debt consolidation loan is a loan that you have to pay back. What happens to your credit rating is largely contingent on how you pay your loan back in the future. Many people see a slight bump right away as they pay their credit cards off, especially if they had a lot of balances that were nearly maxed out. In the long run, debt consolidation loans are great credit repair tools because of how useful they are from a debt management perspective.

Are there any risks in receiving a debt consolidation loan?

The truth about debt consolidation is that it really can help you get back on top of your finances. Most people who receive this loan see a wonderfully positive outcome over time. However, the most common pitfall involves people falling back into unmanageable debt after receiving a consolidation loan. Because of how the loan works, you zero out your credit cards and make your payments only to one creditor every month. This means that your credit cards are still open and usable. Some people with poor financial discipline begin recklessly using their credit cards, and find themselves in close to double the debt they started out with. Rest assured that this is a very rare situation.

To learn more about debt consolidation loans and how you could benefit, talk to your bank or loan broker or consider the online loan brokers.

Your ability to pay is a simple function of your savings and income. Many people with a very high income can receive a number of loans even if their credit is in the dumps. By increasing your income, you significantly increase the chance that you will receive a personal loan of any sort.

Your willingness to pay is defined by your credit score. Now obviously, a lending firm can never truly know if you are “willing” to pay off their loan, so they answer this question by looking at your credit score. In general, to receive a loan in excess of $1,000 you will need a credit score at least higher than 600.

To receive a personal loan, you must display both the ability and willingness to pay. Additionally, the more willing and able you are to pay off a loan, the larger the loan and the lower the interest rate you will receive. To increase your ability to pay, you simply must have more money. This is quite simple and may be difficult or impossible for you to do for any number of reasons. On the other hand, you can take significant steps toward improving your credit. Here are some methods to increase your credit score:

So how to get a personal loan with bad credit? If you have charges that are more than a year old, begin writing letters to the credit reporting bureaus disputing these charges. In many cases, collection agencies do not have the proper documentation (or even any documentation at all!) regarding your past charges and they may not be able to contest your dispute. Striking old charges will go a long way to improving your credit score.

Use secured credit to quickly increase your credit rating. Most people use a secured credit card, but a secured loan is also possible. A secured credit card reports to the credit reporting agencies as if it is a standard credit card that is being paid off in full each month. You do not need anything except a deposit to receive a secured loan. Once you know how to improve your credit rating it is easier to get a personal loan from a bank

By simply doing these two things and increasing your credit score, you significantly increase your ability to receive a personal loan.

Finance companies generally do not like to issue personal loans any more. The modern-day equivalent of a high risk personal loan is an introductory credit card or a credit card aimed at people with bad credit. This is not to say that companies do not continue to offer high risk personal loans, but you will certainly have a lot more luck receiving a credit card than a personal loan from the vast majority of companies.

The ‘high risk’ in the name of the loan refers to two things. First, it refers to a poor credit rating. Second, it refers to a poor income in relation to your expenses. When you are applying for a high risk personal loan, you will hopefully only fall into one of these two categories. A financial services company may overlook a poor credit rating if your income is large enough that they believe you will easily be able to cover the payments on the loan, or they may overlook a low income if your credit rating is high enough.

In a tough credit market like today’s, a high risk personal loan will either not be issued, or will be issued at an exorbitant interest rate if you have a low credit rating and poor income. There are some options, however, that you can explore to receive a more reasonable high risk personal loan.

Go through an untraditional lender. There are “peer to peer” lending markets on the internet that specialize in providing unsecured loans to people much like yourself. The interest rate at these web sites tend to be reasonable, so long as you can write a compelling case for why you need the money. Some offer guaranteed high risk personal loans to those who meet certain conditions, like having payslips for the last month. If you have bad credit, high risk personal loans are still available through online brokers. These high risk unsecured personal loans might be harder to come by though, as the lender will want at least some form of security or assurance that you will be able to pay.

Also, local credit unions and smaller banks are a great deal more likely to be high risk personal loan lenders than a large bank. If you have not been doing your banking with a local credit union, you may wish to start doing so. Credit unions are known for helping their customers through tough times with untraditional loans.

If you need a high risk personal loan, you are likely already in a position not to receive one. To maximize the likelihood of receiving one of these loans, you may wish to explore these untraditional avenues first before lending companies.