Tips and Tricks on How to Negotiate for a Loan
Updated · Aug 21, 2023
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Negotiation, in general, is a good skill to have whenever you want to strike a good deal. Of course, when it comes to negotiation, it usually involves money. Luckily for you, when it comes to money and loans, there are tons of financial institutions now clamoring for clients, giving you a lot of space to bargain. However, knowing that fact won’t help much when negotiating for loans.
You must work harder and portray yourself as a good potential borrower to your lender. That said, even if you strike yourself a pretty good loan deal with your borrower, there’s still plenty of room to negotiate if you want a better one. However, this is all easier said than done, so you might be asking, “How do you negotiate for a loan in the first place?” Well, let us help you with that. In this article, we’ll give you tips and tricks on negotiating a good loan deal with your lender. Let’s start.
You need to do your homework before you apply for a loan. One thing you should consider first is shopping. Just like shopping for different brands of clothes, you could also shop for different lenders for the type of loan you want to get. By researching this, you can compare the different loan deals with each other, which you can use in negotiation.
Speak Like You Mean It
Proper negotiations mean proper decorum. That said, you also need to speak the language of lenders for them to understand what you’re after and for them to know you’re serious. Knowing precisely what you want will give them the impression that you’re serious about the discussion and do what you say.
Also, it shows them that you’re confident, which is a good impression to have, especially if you’re starting fresh with the lender. When speaking their language, there are just a few terminologies you should remember and drop during the conversation. A few of them would be financial covenants, balloon payment charges, early payment penalties, guarantees, tenure, upfront transaction costs, etc.
Maintain a Healthy Score
Your credit score is crucial to the negotiation deal if you’re looking for installment loans online. It’s the main factor in whether or not you’ll get the loan after all. That said, if you want to have a better chance of getting a loan offer, one thing you should always take care of first is your credit score. Of course, if you want a better deal, your credit score should have at least 750 points. Seven hundred fifty points is the lowest but still passable credit score for many lenders.
But how exactly do you get a good credit score? For the sake of the length of this article, we won’t delve too deep into how to get a good credit score since it deserves an article of its own. But the general idea is that you must pay off your debts, lower your credit utilization rate, diversify your credit report, etc.
However, a good credit score doesn’t guarantee that you can get a better loan offer. You still need to do some work, especially negotiating. But still, having a good credit score is a good start if you want to get better loan options from your lender.
Read the Fine Print
Once you pick your first lender, you have to research their rules regarding the loans. In short, you need to read the fine print first before signing the contract. The fine print tells you about the loan terms in general. You should also find the fees, penalties, borrowing limit, interest, grace period, etc.
With all this information in your arsenal, as a borrower, you will have the right knowledge to start the negotiation with a predetermined goal, which can be used as leverage.
Be Smart About It
You should also listen to your own guts when it comes to negotiation. When you think you’re getting a bad deal, you should listen to your gut and try harder negotiating. You should remember that lenders don’t want to lose potential customers, which you can take advantage of. For example, you can say that you’re merely shopping and have already landed a better potential deal with your previous lender.
That said, if they bite, you could then negotiate for the loan terms like the prepayment charges, annual fee, commission, processing fees, interest rates, borrowing limit, etc. However, you should also know when to stop. Your lender shouldn’t feel like you’re taking too much advantage of your leverage. You should also be reasonable and learn how to stop when you know you already have a good deal because if you don’t, your lender might think that you’re making fun of them and will just reject your approval after all that work.
Negotiating for a loan requires a lot of work, and it should be since you’re the one borrowing, after all. However, that doesn’t mean that you’re the underdog in the negotiation. You should also learn to take control of the conversation. Remember, you and the lender should land a good deal for both of you.
Wayne Kernochan has been an IT industry analyst and auther for over 15 years. He has been focusing on the most important information-related technologies as well as ways to measure their effectiveness over that period. He also has extensive research on the SMB, Big Data, BI, databases, development tools and data virtualization solutions. Wayne is a regular speaker at webinars and is a writer for many publications.