Next Time You
Need a Loan, Make Sure You Negotiate
by Paul Tobey
I've made some major purchases in my life including
houses, cars and even my grand piano. All of these
things I've had to finance. And, several years ago
when I was a starving musician first starting out,
I had quite a time arranging financing for my first
home. In fact, I had to pay almost two percentage
points higher than the bank rate. Why? Because, I
wasn't showing enough on my tax returns and was considered
high risk.
I was however, able to leverage the equity on my first
home to finance my grand piano at a pretty good bank
rate. As for my cars I've always bought used and paid
cash. Like most low income earners with little to
no credit, or bad credit, I learned over time how
to build good credit.
It was a bit frustrating sometimes, having to pay
higher bank rates, but I must admit the benefits of
being a self-employed musician meant that I could
deduct a lot of expenses including the interest on
these loans.
One of the things I've learned over time is that even
though I am considered high risk, lenders still want
my business. There were a couple of things however
which kept me from negotiating better lending rates.
The first is that I felt embarrassed to show these
people my income statements. Even though they didn't
really reflect my earning power, I felt ashamed. And,
because of that I didn't even try to negotiate my
lenders. The second thing is I really didn't even
know that it was even possible to negotiate my lending
terms, much less ask for better rates.
No matter if you are in a low income tax bracket or
a high one, there are good money managers and bad
money managers. I have a millionaire friend who runs
up his credit cards to the maximum and doesn't pay
them until he gets calls from the collection agency.
Then he finds ways to move money to pay everyone and
then starts the same process all over again. Even
though he's a millionaire, his credit rating is poor.
In order to be an excellent money manager it's important
to learn two things. One; don't be ashamed of where
you are at. Feeling ashamed will keep you focused
on what you don't have rather than what you are doing
to better your current situation. Poor people stay
focused on the problem. Rich people stay focused on
the solution. If you want to fix your problem, or
change your current situation, stay focused on what
you can do to instead of what you can't.
The second thing you need to learn is how to negotiate
your lenders. If you are renewing your mortgage, purchasing
a used car, or making any other major purchase make
sure you negotiate the lender. How do you do this?
When you sit down with them ponder for a few moments
the rate they quote you. Then look at them in the
eye and say these exact seven words, "you'll have
to do better than that'. If for some reason they say
they can't do anything, be prepared to walk away.
Also, try to negotiate the rate before they do a credit
check because each request is monitored by the credit
bureau and that can lower your credit rating if you
get turned down.
