Negotiate with your Lenders!
Correspondent | Monday February 22, 2016 15:42
After all, affordability, quality and safety are paramount for our children’s education. Shopping around for a loan should be no different.
Loan providers want your business. They want to lend you money because that’s how they make money. Because of this, you’re in a position of power to negotiate with the lenders.
Comparative Shopping
Firstly: give yourself time. You need to shop around, find out what type of loans are available and what is required from each lender. Once you know what loans are available and how much each one will cost, you can then start to negotiate.
The Negotiation
Show Lender 2 the offer you have from Lender 1, be transparent. Then ask them if they would give you a better offer in order to get your business?
If they will, you could take your new “better” offer from Lender 2 back to Lender 1 and see if they will compete for your business.
Keep trying with different lenders - get them to win your business by offering you a better deal. By doing this, we’ve seen people reduce their vehicle repayment interest from 15% per year down to Prime (9%).
Term
You may find that the longer the loan runs for, the lower you can negotiate the interest rate. This is because the lender will make more money from you over time. Most lenders in Botswana no longer apply penalties to loans that are paid off early, so you can try to pay it off more quickly than planned. This will save you more money on interest.
Credit history
If you have a ‘good credit history’, this proves you are a low risk client, who pays their debts on time every time. This fact will make you an attractive client for the lender, and should result in them offering you a lower interest rate.
Once again, you may have to ask for a better rate as the lender won’t automatically give it to you. It’s up to you to prove your credit history and ask for a better rate as you are a “low risk” client.
Equally, if you miss repayments, and fail to communicate with your lenders, you will get a bad credit history. The worst credit history is when you get on the ‘black-list’. In Botswana, the most common company keeping these records is ITC. Getting ‘Blacklisted’ can stop you getting any more affordable debt.
Secured vs. Unsecured Loan
Some lenders may offer you an ‘Unsecured Loan’. This means that you don’t need to show any assets in order to take out the loan. Beware: interest rates on unsecured loans can be high.
However, if you do have assets, such as a property, the lender may offer you a lower interest rate if you ‘mortgage’ that asset to them. This is called a ‘Secured Loan’. The interest rate is lower because there is less risk to the lender – if you stop paying, they will take ownership of the asset.
Be aware that, if you ‘mortgage’ or ‘bond’ your assets to a loan, and you can’t pay your loan, the lender is allowed to seize your asset and sell it on their terms to recover the debt.
Re-Negotiating with Lenders
It’s possible to re-negotiate with a lender during the course of your loans term. For example, interest rates have fallen recently, and the lender may be able to reduce your interest.
If you reach a time in your life when crisis happens and you can’t make a debt re-payment, don’t stay quiet and hide from the lender. It might be scary, but you need to make a phone call, book an appointment and go and see them, sit with them and explain your situation. When you meet with your lender, show them your schedule of debts. Show them your written debt repayment plan and what your plan is with their loan. Ask them to re-negotiate a reduced payment plan with you in line with your written plan.
They will realise that you’re not running away from the debt, and that you have a serious commitment toward repaying the loan. This will make the lender more willing to work with you to find an agreeable solution for you. This might mean increasing the time over which the loan is repaid (the term) or reducing the interest rate, or even taking a planned payment holiday.
Consolidating Loans
It may be necessary (for those of us who are in severe debt) to consider consolidating all your loans into one.
Beware: to do this you first need to educate yourself to make better decisions in future. Once you take out a consolidation loan, you shouldn’t take on any more debt until it is repaid. You then need to be prepared. Work out your repayment schedule for all your loans; work out your current earnings as well as your monthly budget.
Once you have got into too much debt trouble, you will be considered you a “High Risk” client. Therefore you must prove your commitment to find a solution to your debts to the lender. The idea is if a bank agrees to consolidate your debts, they will pay off all your debts for you, and then you will owe only one lender, ie. the bank. They should give you a longer term to pay off your debt, and may reduce your overall interest rate. This may mean that you’ll have more money each month to live on.
However, if you fail to pay your loan, or if you take out other debt, you won’t be given any further chances and will more than likely be black-listed.
Remember: commit yourself to your debt schedule. Always make your repayments on time, and you will Get Out of Debt!
Author: Tshepiso Kgakatsi – Financial Wellness Trainer © S.C.I. Training run financial wellness programmes and money counselling in Botswana. For help and information contact them on 3180243, 72309718 or money@wellness.co.bw