Even if you are getting what appears to be the best loan deal in the market at any given time, there’s always room to negotiate. Banks price loans with this in mind because they don’t expect you to accept the initial loan terms. Unfortunately, not many people negotiate and the few that do don’t do it like they should.
Instead of leaving your bank to decide all the loan terms or accepting the next best terms given to you, there are a number of things you can do to get loan terms which most people can’t get. You should always remember that banks need to give loans to make money so, you are not the only one getting help. It’s a symbiotic relationship, and as the customer, there are always ways to get better terms. Here’s what you need to do;
1. Work on developing a relationship with your bank’s loan officer
Always remember that the bank gives its best loan terms to the customers it knows/has a relationship with so, start cultivating your relationship with your bank early. To do this effectively, you need to know the bank workers who matter the most. Although the tellers and bank managers can help you get loans, loan officers are the once who have in-depth knowledge about the best loans and terms. In simple terms, a loan officer who knows you and your financial situation is in the best position to find you the best loan and terms so, take time and know your loan officer before you decide to take out a loan.
2. Identify your bank’s needs
You also need to know how what your bank needs at that particular time. As mentioned above, banks depend highly on interest income to make money so knowing how well your bank is doing can help you negotiate the best terms. For instance, although a bank that is struggling will be highly motivated to give loans, a bank that is doing well will be more willing to negotiate. The most important thing is finding out how motivated your bank is to bend their terms.
3. Come up with a negotiation strategy in advance
You should also prepare in advance to make sure you have the upper hand while negotiating. First, you must find out which aspects are highly important to you (non-negotiable) as well as the once you are willing to negotiate. You should also know how far you are willing to negotiate. Ideally, you should only negotiate those loan issues that are less important to you. Preparing in advance gives you an upper hand at the negotiation table.
Bankers tend to respect borrowers who can read in between the fine print. If you can be able to compare loan terms for what they really are instead of listening to your lender tell you how great the terms are, you will erode your loan officer’s power and be in a better position to negotiate. The idea here is making sure you gain respect and participate in the negotiations like an equal as opposed to being the pigeon.
4. Don’t accept high-interest loans
Interest is one of the most crucial factors to consider when negotiating for loans because it determines how much more you need to pay for the money you are getting. So regardless of your credit situation, don’t accept high-interest loans. Borrowers who show a willingness to compromise on interest rates never get the best terms. In fact, you should be willing to walk away if your bank appears to be rigid about high interest rate charges. Although different banks may charge different rates, you should be able to get a single digit APR if you have good to average credit. If you have bad credit, you shouldn’t accept rates as high as 25%.
5. Negotiate everything
Although interest may be the most important factor to consider when negotiating for the best loan terms, there are many other factors to you should consider like payment schedules, security arrangements, fees payable, etc. that have a direct impact on the final cost of the loan. For instance, you should choose flexible repayment schedules and an appropriate repayment term that matches your cash flow. Also, the security you are supposed to put up and the fees payable shouldn’t be excessive. Remember to negotiate on all these things including the loan restrictions. You will be surprised how much banks earn over and above the interest they charge.
6. Be willing to look around to get what you want
You also stand to get the best loan terms if you show your bank that you aren’t desperate to get a loan from them. If you do your homework in advance and show your bank that you can get better terms with other banks, you stand to get those same terms or even better. Always remember that the best deals are given to those who aren’t desperate so even if you seriously need money, never show it. Do your homework and stand your ground when you get to the negotiating table.
It doesn’t matter if you want a personal loan, short-term loan or long-term loan. You can’t get the best terms possible if you don’t negotiate. Luckily, you now know everything you need to know to negotiate effectively.