As long as you meet the necessary criteria, getting a personal loan for a car, home improvement or any other reason can be easy to do. But, like most things in life, the things that take the most effort can reap the best rewards.
In this article we explore how, with a little preparation effort, you can get the lowest possible interest rate on your personal loan by learning how to negotiate effectively. Negotiating might seem intimidating or too complicated, but our step-by-step guide will give you the confidence to negotiate like a pro.
Step one: Prepare for your negotiation
An important first step is to make sure that you have a clear understanding of your personal financial situation. For example, do you know what your credit score is?
Understanding your credit score will give you a strong idea of how much risk you represent to a lender, and therefore, how much interest they will charge to mitigate that risk. Checking your credit score is free to do and the information you get will provide you with an insight into how a lender will see you.
Secondly, research lending providers. Each lending provider has its own fee structures and interest rates. Some may charge a fee for monthly repayments, while others won’t. Lots of lenders have online reviews produced by experts in finance — be sure to check what these reviews say to make sure you know what a lender offers, and what to be wary of.
Next, get your documentation in order. The application process for any personal loan will involve the presentation of key documentation such as proof of identity and proof of income. A lender won’t simply accept that your annual salary is exactly what you tell them, you will have to prove it.
Step two: Negotiation strategies
While some are natural negotiators, the rest of us have to have a clear strategy in mind before they enter the conversation.
The (and possibly most important) strategy is to set clear goals. What is the highest interest rate you will accept? Are you prepared to accept monthly payment or early repayment fees in order to get a better deal? What loan term are you looking for?
Be clear in your own mind about what you want and what you are willing to accept. If not, it can be easy to come away from a negotiation with a worse deal than you hoped and planned for.
It can also be very helpful to establish a good relationship with the lender you are dealing with. Research has shown that we are more likely to react positively to someone if we believe they have taken an interest in us and have made an effort to get to know us as a person. If you are open and engaging, a lending provider will be more inclined to go a little further to reciprocate.
Step three: Avoid these common mistakes
Don’t let your hard work be undone at the negotiation stage by falling into one of these common pitfalls.
- Read the fine print: You may feel like you got a great deal on a loan, but are you sure you understand all the terms and potential fees involved? It’s your responsibility to know all the details before you sign on the dotted line.
- Focusing solely on the interest rate: The interest rate you get is hugely important, but it’s not the only thing to consider. If you choose a loan term that is longer than necessary, for example, you will likely pay more interest over the entire term of the loan than if you would have if you chose a shorter term but with a slightly higher interest rate.
To wrap up, securing the best terms for your personal loan boils down to preparation, clear negotiation goals, and avoiding common pitfalls.
By understanding your financial standing, researching lenders, and establishing a positive rapport, you pave the way for successful negotiations. With these steps, you’ll be well-equipped to negotiate like a pro and attain the best personal loan terms for your needs.