How to negotiate a loan successfully
When you need breathing room for your finances, one option is negotiating with your debtors. Here are some key strategies how to negotiate a loan:
- 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 financial troubles are temporary and that you can pay them back within an agreed-upon time.
- Restructuring debts and negotiating loans make it harder to borrow money in the future, so use this option strategically.
- If you’re restructuring debts, you must have extra cash to pay them back later.
Borrowing money, whether for a home, a car, or other significant purchases, often involves a long-term commitment to repay the loan with interest. However, unforeseen circumstances can sometimes disrupt this financial equilibrium, making it difficult to make regular loan payments. When faced with such challenges, loan restructuring is a potential solution.
This blog post will delve into the intricacies of loan restructuring, providing insights into how to successfully negotiate a bank loan with lenders, and how to navigate the process effectively. We will explore the steps involved, the factors to consider, and the potential consequences of this financial maneuver.
Negotiating payment of loans is less straightforward
When you agree to take a loan, be it a personal loan, home loan, or even a business loan, you borrow a big amount of money and you pay it back over a long period 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 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 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. Given enough time, you will be able to recover and continue paying your loan.
- Avoid appearing destitute or broke. Show that you are only going through a rough patch and can deliver the required amount on a new schedule. The key here is to reassure your debtor that you can pay your debt given new terms.
How to negotiate a loan
When settling 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 reassures your debtor that they will be paid back.
Likewise, prove that you have a feasible way to pay your debt in the future fully. 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 for dealing with this setback. If getting back on your feet just takes time, your chances are better.
Prepare documents and other forms of proof that can support and show your financial situation. Show that you can manage your debts by paying your credit card bills on time and in full, if possible, before arranging for loan restructuring. You need to prove to your debtor that you are good at handling money and capable of paying your dues.
If you agree to restructure debts, you must also have extra cash to pay them back later.
Approaching the bank prepared shows your serious intent, but application of debt restructuring is ultimately your lending bank’s decision.
Be mindful
One of the most significant consequences of loan restructuring is its potential impact on your credit score. When you request and receive a loan restructuring, it is typically recorded on your credit report. This record will come up whenever you get a credit review, which can negatively influence your creditworthiness, making it more challenging to obtain future loans.
Loan restructuring often involves modifying the payment terms, which can result in missed payments during the restructuring period. These missed payments can be reported to credit bureaus, potentially lowering your credit score. Additionally, if you fail to make payments even after the restructuring, your account may be marked as delinquent, severely damaging your credit.
Lenders may view loan restructuring as a sign of financial instability, indicating that you may have difficulty managing your debts. This perception can make it more difficult to secure future loans, even if you have successfully repaid the restructured loan.
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. If you find yourself in a situation, 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.
We hope these tips on negotiating a loan help you make a more informed choice for your financial future.
