10 tips for loan negotiations
- Check your credit report, preferably well in advance. There are a lot of things that one can do to clean up a credit report and make it look better to prospective lenders. Checking your own credit report will also give you a chance of reporting any errors.When you commence loan negotiations with prospective lenders, nothing on your credit report should come as a surprise to you.If there is anything that speaks in your favor but can’t be seen on your credit report, inform the lender and offer to show proof.
For many of us, personal finances are not something that we feel comfortable sharing information about. It’s a private issue that we prefer to keep to our selves. However, when it comes to credit, there is a lot to gain by asking those around us about their experiences with various lenders and credit solutions. Bring up the subject in a tactful way and explain your own situation. “I’m looking for a mortgage loan to buy a house in this area, and since you already live here, it would be great to get some input from you.” or “I’m looking for a credit card with an excellent frequent flier program and travel insurance, how’s your card working out for you?”If you know that the Smith family on Green Street got a certain interest rate on their mortgage loan two months ago, this can serve as a bench mark for you when you negotiate a mortgage loan for the house you wish to buy further up the street. Of course, your financial situation is not identical to that of the Smith family, but it can still be a good point of reference. “My friend got this interest rate, what would be required of me to get a similar offer?”- Be calm and polite when you negotiate. You’re not begging for a loan and you’re not trying to bully anyone into giving you a loan. Make sure that you know the local etiquette for loan negotiations. If you are looking for a loan in Arizona then you should study the local customs by visiting a local website. If you are looking for a loan in Norway you should visit a website such as Norskkreditt.no to read about the unspoken rules on the Norwegian market. All markets have their own unspoken rules and you increase your chances of getting the loan you want if you take time to learn them before you start negotiation.
- A common misconception is that a borrower that shows up in person will get a better deal than someone who negotiates over phone, email, etc. In reality, each method of communication has its own strengths and weaknesses, and how it all pans out will largely depend on the involved parties. Going around in person does take up a lot of time and effort, and you might be more inclined to settle for a so-so offer just to save you the trouble of visiting yet another loan office. Also, there might be lenders that doesn’t have an office in your neck of the woods and that you would miss out on if you limited your negotiations to office visits only.
- If you are negotiating about a mortgage loan, be knowledgeable about the property. If you have reason to believe that it will appreciate more than the general house market in the future, let the lender know why. Some centralized lending agencies do not know much about local conditions, so they might not know about that new highway project that will reroute traffic away from your street.
- Don’t let anyone stress you. Ask for a reasonable amount of time to think when you are given an offer. You don’t want to come off as naive or desperate. Rushing someone into making a decisions is a well-known sales technique.
If the lender is offering other services in addition to the loan type your applying for, you may get a better offer if you agree to become a full-service client. A bank might for instance give you a better mortgage loan if you agree to also have your bank accounts, credit cards, investment portfolio, certain insurance solutions, and so on, with this bank.Never agree to this without carefully weighing the pros and cons. Also, you might want to contact your old bank and see if they are willing to make a counter offer to keep you as a client.- Your time is valuable. Don’t get stuck in negotiations that aren’t going anywhere. Spending time negotiating about ridiculously small things will only make you seem desperate, and the lender will assume that they only need to throw you some free chicken feed to make you feel happy about your negotiation skills.
- For most loans, the interest rate is the biggest factor for total credit cost and if you have a hard time to get a loan approved, you’ll have to accept high interest rates in the end. However, this doesn’t mean that negotiating about other factors is useless – as long as you remember point 8 in this list. Sometimes a lender might be unable to decrease the interest rate anymore for you, but could waive or reduce certain other fees, or give you something such as free home insurance with your mortgage loan.Of course, its important to keep your head cool and not accept a higher than necessary interest rate just because the lender is giving you pretty but low-value gifts.
- After a negotiation, make sure you receive a written lock-in with all the important details included. There should also be a time limit for the lock-in and that time limit should be set long enough into the future to give you a reasonable amount of time to think and compare this offer with other offers.