Are Personal Loan Rates Negotiable?

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By: Scam Risk - Expert Reviewer

Personal loans, if used wisely, are a great option to secure extra cash to fill in your budget for out of pocket needs. They’re usually unsecured, meaning a collateral is not a requirement, which is a good thing, especially when you need the funds for immediate concerns. Depending on one’s need, another type of personal loan is unsecured where a collateral is required to obtain it.

Given that personal loans usually involve a considerable sum of money, you are probably wondering whether personal loan rates are negotiable. People commonly haggle for big or small purchases so, hey, why not for personal loans?

Truth is, in general, large financial institutions such as national banks adhere to strict lending practices. Normally, interest rates are set in stone, and loan terms are final–giving you no room to bargain. That doesn’t mean you can’t beat the system entirely and just settle for the rate handed on to you though. 

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What most people fail to recognize and consider is that there are several factors that come into play when it comes to making a personal loan but when carefully studied, can in fact give the needed leverage.
As with any kind of transaction whether in business or in personal relationships, honesty, trustworthiness, and credibility will gain the respect of the other party and will be key to a successful negotiation.
Focus on how you can show your sincerity and review your financial records to support your claim. It is best to weigh in several factors before applying for a personal loan:

Credit Score

The most important thing to lenders is the creditworthiness of the borrower. The credit score is a metric that is often used by lending institutions in their decision on whether to offer you credit or not. It is a number between 300 and 850 assigned to your credit file and is based on a model created by the Fair Isaac Corporation or FICO as it is more commonly known. Your credit score plays a key role since it is used to evaluate your potential as a borrower. 

The ideal credit score is around the 740 marks as this will land you the best interest rates and terms. Having a score this high will also make the lender more likely to negotiate fees with you. Origination fees can add up to 7% more for you to spend so try to negotiate with the lender to discount the fee. This will give you extra money to apply to your principal and this will pay off the loan quicker. Make sure to increase your credit score as much as you can before applying for a loan.

The credit score is calculated depending on different factors:

  • Payment history – you get a good score if you pay bills on time

  • Debt burden – this refers to the amount borrowed and total credit utilization; you incur a lower credit score if you have existing debt

  • Length of credit history – if your record shows proof you have good management in dealing with loans, the better your credit score will be

  • Types of credit – how you handle different types of debt whether a car loan or mortgage will make or break your score

  • Recent applications – a record in credit bureaus will determine your creditworthiness; it helps if you avoid applying for credit cards if you’re applying for a personal loan 

Bank history

Relative to a high credit score is your reputation with banking institutions. If you are applying for a loan with the same bank where your savings and checking accounts are, chances are you have already developed a good relationship with them. Might be worth checking your current bank since they have first-hand knowledge of your reputation and trustworthiness as a creditor.

Secured loans

When credit score or bank history is not sufficient, you may avail of a secured loan. This is a type of loan that requires a collateral that comes in the form of a physical asset such as a land property or a vehicle. Offering collateral usually cuts the deal since the lender carries fewer risks in this type of transaction. Interest rates and terms may vary though so it is best to check first whether this will be beneficial for you in the end.
Before applying for a secured loan, make sure to compare loan rates and terms with multiple lenders. You can compute these in advance to give you an idea of how much it is likely to cost. It is best to estimate your monthly payments and the total amount of interest to be paid to ensure the best deal you can acquire from each of your target lenders or institutions.

Credit Unions

Credit unions may be worth considering if you need to borrow short-term loans. These institutions are not-for-profit organizations and often have your best interest in mind. They are smaller organizations with a solely vested interest in helping a local community. Borrowers who want to negotiate for a reasonable loan rate may consider their local credit union or a community bank.

Online loans

Believe it or not, there are alternative options that are sometimes overlooked when it comes to securing a loan. Online loans such as those offered by SoFi or LightStream can be worth considering since they offer a simple, hassle-free loan experience and give excellent interest rates to consumers with good credit. Usually, the maximum interest rate is considerably lower than traditional banks or what other lenders charge.
Thankfully, there are now lenders and agencies out there that offer flexibility and lower rates. With the global pandemic looming over our heads, some government and private firms are even quick to step in and introduce low-rate loans for borrowers who are dealing with financial hardships.
There are also lending firms that have switched to a more case-by-case approach when dealing with those hit by the COVID-19 pandemic. However, you need to research and weigh out the pros and cons before making a commitment since some programs might affect your credit scores and if not carefully studied, may not be beneficial as a whole.

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