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Importance of negotiation while taking a loan

Conflict only adds tensions and anxiety. It is always better to find ways to discuss and an alternative that benefits all. Negotiation is a conversation between two people looking for a solution for both the parties. Negotiating or compromising is never about losing or winning or getting the upper hand over the other. It is about the healthy relationship with another person or the party.

No doubt, negotiation skills are an important part of our day to day life. Effective negotiation ability is highly valued than ever before. Negotiation is to get a fair deal possible for you and your organization. For example: may be with an effective negotiation if you are able to reduce your overheads by 10%, that money margin straight goes to your profit. Similar rule applies when we move out in the market looking for a suitable loan required as per our needs.

A loan is a life-long commitment and reflects a considerable effect for the following years and cannot be treated lightly in any of the case. Being technology a big savior these days we can find number of options for everything just with a click. Same is with finding loan options. To keep us updated Banks/ NBFC’s keep sending us mails regarding the offers on loan amount, interest etc. We do see number of adds, pop ups while browsing internet. But, take time to evaluate. Don’t take anything that comes as a first offer. Once you are sure of your needs ask for several offers the lenders have, ask for quotes. Try to negotiate even more on different terms. A skillful negotiation can help you to save a lot of money in future. So, don’t be shy in asking.

There is very relevant tag line of a service provider: “Poochne Me kya Jata Hai”

The biggest mistake that people do while borrowing a loan is that they never think of any other product or other types of loans available for the fulfillment of the required fund. Most of them are just focused on what they want to achieve out of that loan. They are more stressed with the possibility of rejection, documentation required for the loan. They find themselves in a thankful situation if their loan application gets approved and forget about negotiating.

Banks/ NBFC’s do need your business. They also make profit, just like any other business. So, instead of being thankful, use your power to negotiate. When taking a loan to buy a new car, a house, or even a renovation, we spend a lot of time to find a cheapest and a best product. It takes a lot of research of days or even months to find that suits the best for you. You then try to shape up your bad credit score too. So, while trying to get a fair deal, try to make it even better. Following are the few points that can be helpful to be prepared for the negoatiation.

Negotiate on Critical Term before Signing

Try to negotiate on what exactly you want and get an estimate of what you will actually get. One cannot find a bank that would drop a ROI by 5%. Instead one can easily try to get a discount on fees or changes in other terms and conditions or cut the penalties for prepayment. There is a huge competition among the lenders that means you have more options to shop from. For example: if you want to buy a TV and you go to the dealer without any backup plan. You might get tempted with  the options the dealer suggest – which in turn rarely prove to be a best option in long term.

Contact, Stretch and Lock

Like every individual every loan application is also different. Final cost of the loan is influenced with many factors and charges like processing fees, administrative fees, legal & technical fee etc. there are easy and convenient ways to get attractive rate of interest. Talk to the lenders with a clear vision. Set a free time and give a dedicated day to sit and talk with the sale representative of the bank. Have clear personal discussion where the terms and conditions from other banks can be discussed. This can help to get a fair deal. The terms are not mentioned in the advertisement or sales calls but still the period after a bank reset the ROI from fixed to floating rate of interest can be stretched.

Read Carefully

A single minded person will only focus on EMI and Interest Rates and unaware of the hidden costs like legal fees, processing fee, administration charges etc. lenders tend to quote a lower interest rates but might compensate by raising other charges. Tracking of EMI’s and interest rates along with other charges should also be compared with other banks and financial institutions.

Keep Other Loans at Bay

Ensure to prepay your other smaller loans while applying for a big ticket loan. It is important because when the outflow of the income is calculated towards your car, personal or an education loan is directly deducted from your monthly salary. These in turn affect the sanctioned amount for the loan.

Get Documented

Get everything on paper whatever you negotiate, the promises, the future benefits from the bank. Do not be fooled with the big words and false promises of the sales people from the organization.

Pre Valuation of the property

Get your property pre valued to get the exact value of the property. Even if one has to pay a small amount towards valuation fees. It is worth for old resale properties.

Legal Documents

Provide all copies of property papers, chain documents, KYC’s along with the application form to highlight the problems at an early stage. Obtain the accepted format of NOC issued by the society / authority at earliest to avoid common problems.

Financial Terms

  • The basic financial terms should be discussed in prior and would include the following:
  • The amount to be borrowed
  • The applicable interest rates should be clearly discussed. Type of interest whether fixed or floating should be specified. If the rates vary among different lenders, know the specific reasons for the same. Discuss the maturity date, any rights to extend and the conditions if in case maturity date is extended.
  • The description of all the fees included and their due dates. By what time the fees has to be paid and if the fees outside bank can be capped or at least estimated.
  • On what basis the interest is calculated? Is it based on 365/6 day calendar, 360 day – a year of equal 30 day months or some other conventional method?

Prepayment Rights

It is generally assumed to be silent on prepayment commitments. Unfortunately, if not discussed, it can cause a big hole in your pocket. A commercial lender is authorized to bargain the benefits over the agreed rate of interest or the period of time. The solution is to insist to avail an express right to prepay at any point of time during the loan tenure. The prepayment can be in part or whole and without penalty or premium. Lenders often resist this request and insist on prepayment restrictions. Most Mortgages permit but with any defaults in the repayment schedule the lender might ask you to pay certain charges. But these charges can be negotiated at any point of time.

Develop a long term relationship with the lender and the one who understand you well will be of great help when you need it most. Negotiation is certainly effective to ensure that both parties should understand of what is expected of the other. It is the ability to create a win-win situation for both the parties. Though, it is difficult to make everyone happy but this why it is so highly valued. After negotiation the impression you leave can have a lasting impression that can impact everything from your reputation in the market to your future negotiations. It is always better to negotiate with an ability to make people work with you instead of blocking roads in future. Lastly, don’t be distressed if are turned down for a secured or an unsecured loan for any reason. Try to find the reason, improve on those aspects and come back with more negotiating power.



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