How to Negotiate a Loan
Everyone at one time or another has the need to arrange a loan. Most of us will do this many times when buying homes, cars, even appliances. Loan negotiations should be approached with care and consideration as there are many ways to arrange financing and the easiest are typically the most expensive.
Anticipate If You Will Need Financing Before Negotiating a Loan for a Purchase
The biggest mistake when people arrange financing is that they don't anticipate needing a loan before starting the process of negotiating for the item in question That is, they focus on the home or car or television and try to get the best price for what they want. Then they are presented the financing terms by the person selling them the item. By then they are tired of the process and only want to get home and enjoy their recent acquisition. Unfortunately, it is the financing that can make a good buy an expensive acquisition. Before going on a buying spree consider how you will buy the item. If you know you are going finance it, consider setting up a line of credit with your bank or other lender so you do not have to take the seller's financing unless that is better than what you have arranged.
As with any negotiation, you will want to spend time getting to know the people you are dealing with before having to talk turkey. Tellers at your bank are not able to give you the best financing terms but a loan officer who knows you, your situation and your expectations can be groomed through regular contact on your art to help when you decide to take out a loan or line of credit. Cultivate a relationship with a loan officer when you are in the bank so that you have a "history" to use when you need a favor.
Why do you Need a Loan?
Discuss why you are buying the item with the lender and explain how you plan to absorb the cost into your current obligations. Establishing how well you are prepared will give the lender confidence that you have a plan, it is well thought out, and you will be able to make your payments. He or he will have more confidence in your performance and may be more inclined to help you get the best terms.
Identify the Needs of the Lender or Seller
When you have selected the item discuss financing options with the seller. Take the time to establish what your parameters are and what you expect. Ask how sales are going in general. What you want to find out is how motivated they are to sell the item to you. If it is a home and the market is down their motivation could easily be greater than your interest in the house! You want to solicit as much information as you can before discussing the financing options.
Develop Your Power
When purchasing a car or a house the financing is a large part of the cost. Car dealers can make a lot of money of the financing terms. If you have bank financing available, you are able to negotiate a cash price and use your own financing or take the dealer financing if it is better for you. Now that you have the power to choose the dealer loses his control over you and may offer more attractive terms to keep you as a borrower as well as a buyer.
If you have come to the financing discussion prepared, you will be a unique customer. That gets you respect and perhaps some fear as your being informed erodes the power the seller usually enjoys. Now you have the chance to lead the discussion in the direction you want. You are able to compare the terms being offered with what you know you can get from your bank or personal lender. Unused to this approach, the seller is likely to follow your lead and start trying to match or beat the terms you have available rather than selling you on how great his terms are. The difference is that you have become an equal rather than a pigeon.
Have a Winning Attitude
As always, use your persuasiveness to keep the discussions moving forward toward your goal. Persuasion can include deference, manipulation, bluffing and intimidation among many techniques. The most persuasive argument is one delivered with a winning attitude.