How to negotiate a loan successfully
When you need some breathing room for your finances, one option is to negotiate with your debtors. Here are some key strategies on loan restructuring that we’ve collected and how to do it:
- Find out if your loans have balance conversions and staggered payment plans. Then, start negotiations.
- If you’re looking for debt restructuring, focus on reassuring the bank or a creditor that your money troubles are temporary, and you can pay it back within an agreed time.
- Restructuring debts makes it harder for you to borrow money in the future, so use this option strategically.
- If you’re restructuring debts, you have to be ready with extra cash to pay them back down the line.
To say COVID-19 threw the world through a loop is an understatement. We’re almost two years into the pandemic and we’re still feeling its effects in full force. The financial impact of COVID-19 spares no one. If you have loans and other debts, you’re one of many people looking for ways to solve this issue.
Count yourself blessed if you still have a regular source of income during the COVID-19 crisis. For those of you who have found themselves needing cash during this pandemic, you need to understand your options, and we’re here to offer some ways on how to negotiate your debt.
But before you continue, know that borrowing money at this time carries risks, such as higher interest rates. If you’re already in debt, you could be entering a vicious cycle of more debts. Thus, if you can, start with looking for breathing room.
Negotiating payment of loans is less straightforward.
When you agree to take a loan, you borrow a big amount of money and you pay it back over a long period of time in regular payments called amortizations. Amortizations consider both the amount you borrowed to, for example, buy a house or a car, plus the interest you’re charged. If you miss payments, you have to pay it on top of more interest in the form of arrears.
How to succeed at a loan restructuring
Payment negotiation
During the imposed community quarantine, the national government required banks and other lending institutions to offer a grace period for payments through the Bayanihan to Heal As One Act. This offered you some breathing room to make payments for loans that are due during that period.
However, there is another option that you can consider: a loan restructuring program.
Loan, or debt, restructuring is when you ask your bank or a similar lending institution to modify the terms of your loan to temporarily reduce the burden of paying it during a previously agreed schedule so you can recover financially.
This may involve the bank giving you a few months where you pay less or no amortizations or even extending the term of your loan, so you have more time to pay it back, or any combination of these options.
Now, if you’re going to negotiate for a restructuring, you have to do the following:
- Convince your creditor that your financial difficulties are temporary, and you will be able to recover and continue paying your loan given enough time.
- Avoid appearing destitute or broke. Show that you are only going through a rough patch and that you can deliver the required amount on a new schedule. The key here is to reassure your debtor that you will be able to pay your debt given new terms.
How to negotiate a loan
When trying to settle your bank loan, the most important thing for you to do is prove that you won’t abandon the responsibilities of paying for your loan. Show a way for you to make payments in the meantime. This can be in the form of letting a family member like your spouse or sibling shoulder your payments on your behalf for now. This gives your debtor the reassurance that they will be paid back.
Likewise, prove that you have a feasible way to fully pay your debt in the future. For example, if you lost your job due to the pandemic or have issues with your regular source of income as a freelancer, you can share your action plan on how you're dealing with this setback. If getting back on your feet just takes a matter of time, your chances are better.
Prepare documents and other forms of proof that can support and show your financial situation. Show that you are able to manage your debts by paying your credit card bills on time, and in full, if possible before arranging for loan restructuring. You need to be able to prove to your debtor that you are good at handling money and you are capable of paying your dues.
If you agree to restructure debts, you also have to be ready with extra cash to pay them back down the line later.
Approaching the bank prepared shows your serious intent but application of debt restructuring is ultimately your lending bank’s decision.
Be mindful
Negotiating a loan restructuring is serious business because it means you’re unable to meet your payments based on the terms you agreed to in the beginning.
Once you’re granted one, it goes on your record, which makes banks less willing to lend you money in the future. As such, use this option strategically. You will only get one chance at this.
Finally, negotiating with your debtors has a psychosocial impact. How? Admitting you’re having difficulty with your debts can be humbling, even humiliating for some.
However, acknowledging it is a sign of maturity and financial self-awareness. Should you find yourself in a situation, then it’s good that you’re taking steps to deal with it. It entails some sacrifices on your part, but seeing as you’re under unprecedented circumstances, you have to do what you can so that things can get better.
Note: For Metrobank clients, you can get in touch with your branch of account if you are interested in restructuring your debts.
This article is part of a collection of stories and practical financial tips that are published with the goal to help people learn from the experiences of others, and to pick out lessons on personal finance and sound money habits beyond the pandemic.
