How to negotiate credit after you have prepared for it.

UbiqueContributor - April 10, 2021

Advice

I believe that preppers usually understand the burden of debt in an uncertain world.

It is like having a chain around your neck and being restrained by it. I like to be free.

Negotiate credit only if it is truly warranted and after you have prepared to become responsible for credit.

That is what the 6-month test loan payment is really about. You have allowed yourself the time to determine if what you want to buy is really all that urgent. Is it? You have just waited six months for it. So we can rule out urgency.

You also now know what it is like to live without access to that money in your budget. 

If you missed or were late “paying” the test loan payment into the savings account or dipped into those savings for any reason, you need to stop and take a long, hard look at what happened. Be absolutely honest with yourself.

The principle behind having a driver or hunting license is no different from the one that applies to credit. These credentials come with responsibility and they are a privilege to have and not a right to have. Someone is trusting you to repay what you have borrowed.

Lenders are all smiles when you sign on the dotted line. Watch those smiles evaporate if you break the terms of the loan contract. Once you actually borrow money, there are consequences for late or missed payments. If you default, the stakes get higher and I will discuss that in a future thread.

You are also six months longer on your job and living at your residence which goes toward stability that is considered by the lender and as part of your credit bureau. Always consider job stability before applying for credit.

If in a relationship, make sure you can handle it alone.

You should have a least one performance review under your belt before applying for any kind of credit. You need to know if you are making the grade with the employer. If the job market is poor, wait. You need to be able to get another job quickly if you lose the current one.

Now, let’s look at what to do if you decide to borrow money.

First, do your research. Get a copy of your credit bureau and look at your credit score and credit rating. 

I will address credit bureaus in the next thread as there are a lot of moving parts to finance issues and I want to address them in an organized way to keep everything clear.

Examine your credit bureau carefully for any errors. This is important. If you see anything wrong, get it corrected before you apply for credit.

I can’t stress this enough: Do not ever go to high interest lenders or payday loan companies. Their interest rates are like a bad current that will drag you under and drown you so fast you won’t know what hit you.

Whatever it is that you want to buy, it is never worth making a bad financial decision or deal.

Once you have verified your credit bureau information, now you can begin to research loan rates.

If you are an established customer in good standing with a bank, start there if you are satisfied with your business relationship with them.

Most of the main banks keep similar rates, but it is still worthwhile to check across the board and know what range of interest rates you can expect to be offered. 

Include the terms, or length of time given to repay the loan in your interest research. How will that effect your interest rate?

Once you have finished that, then and only then make an appointment with a lender.

Before you walk into that appointment, ensure you have had a good night’s sleep the night before and a good breakfast.

Never walk into a bank reeking of any intoxicant. The stale odor of it wafting out of your pores or off of your clothing from the night isn’t appropriate for a business meeting. Also, many people find the smell of cigarette smoke or strong perfumes or aftershaves an irritant. You would be surprised at how many people forget that one.

Be clean and well groomed and dress for business.

Remember this: you are attending a business meeting not a job interview.

You have prepared. You know the deal you want and you know your worth. If you are offered an interest rate or terms that are not part of your sensible financial plan, then tell the lender “I’m sorry, but that doesn’t work for me. This is what will work for me and my financial goals. How can we get there?” Negotiate.

Find out if there are penalties if you wish to make additional payments or pay the balance in full sooner than the end of term.

Never guarantee a loan by over pledging chattel or security. If you have stability, six months of payments in savings, and a good credit bureau, you shouldn’t have to pledge everything you own to get a loan.

If you are uncertain about their offer and wish to seek independent advice, then tell the lender that you want to think it over and make another appointment for a later date. 

Loans officers are used to people entering their office, hat in hand, as if they are applying for a job and willing to take or sign anything.

Getting a loan is not about winning a prize. It is a business deal.

Once you have made an agreement, then read and understand every single line of that loan document before you sign it.

Never sign your name or agree to anything that you have not read and fully understood including online. Usually, a legal document will state in the wording that your signature is affixed because “I __________ have fully read and understood….” 

If someone tries to rush you, politely indicate that this is business and you are ensuring everything is accurate and to your satisfaction. You don’t need to apologize for being sensible.

I have caught errors in estate and mortgage documents made by a lawyer and banker respectively. They are human and capable of errors in person or online.

Make sure you fully understand and confirm the date of the first payment, the amount and how the payments are taken from your account should the payment date fall upon a weekend or holiday.

Edited to add: Remember when you apply for credit it is also a sales situation. The lender will try to sell you more products or services. It is how they get promoted. They have quotas to meet just like a bank account manager, teller or customer service rep.

For example, you want a mortgage and walk out with a line of credit and a credit card. Or, you want x amount of money for a loan and walk out with more money than you asked for because “you qualified for it.” Do not fall for that. It’s not a popularity contest or an award. They are trying to sell you something – more debt.

Stick to your preparations and plan.

That’s all I can think of for now. Next, credit bureaus.

 

4  

What’s everyone’s thoughts on shopping around for a loan? Lets say I’m getting a mortgage, should I go apply for a loan at 3 different banks and see who has the best deal and interest rates? Will that hurt my credit?

 

Robert, Good question. I was planning to cover it in the next post on credit bureau, but let’s look at this now.

Any time that there is a credit inquiry on you, it will register on your credit bureau.

This next point is really important: many consumers don’t understand that inquiries on your credit bureau are not always made because you applied for a loan or mortgage.

These inquiries will register for store card applications – not credit card – store points cards. So when that friendly person with the clipboard wants to sign you up for a points card or store card or give you an app online for your phone, make sure you check out the terms and conditions in full. Watch for clauses where they want you to agree to financial inquiries.

The more inquiries on your credit bureau can appear like you are “credit shopping” which can interpreted as you are on a spending spree or have been declined. When I worked in credit, it was a red flag, so be careful.

If you apply for a mortgage simultaneously at three different banks, that isn’t going to work, because they will all make credit bureau inquiries on you at the same time.

If you apply with your main bank, then you can check out their interest rates in advance and lending criteria. Depending on the economy, lending practice can change. The banks will tighten their rules or relax them depending on how the economy is doing.

It is important to understand the conditions under which you will assume a mortgage. I know the American system is a bit different than the Canadian.

From my understanding, a lot of people in the USA got into trouble with “balloon payment” mortgages.

I would keep it simple and straightforward. You have x amount down and want to spend x amount of money.

You either have your own life and disability insurance or will be paying the life and disability insurance through what your bank may offer.

I always kept my mortgage P&I for principle and interest only. PIT means principle, interest and property taxes. The compounding effect of the property tax rolled into your mortgage over the term of the mortgage is something to consider. You can ask for a calculation, or do one yourself using online financial calculators in order to see the difference.

Also, in the terms of the mortgage, look or negotiate for the ability to make optional lump sum payments. I had the option to pay 15% of my principle balance once per year as an additional lump sum payment.

By doing that a couple of times and by being able to change the frequency of my mortgage payments from monthly to bi-weekly, I was able to pay a 20 year mortgage off in full in 8.5 years.

Again, I know in our respective countries that some issues in banking are different, but check into it and see if this is an available option for you.

If you are going to apply for a mortgage and have prepared for it, then you know what you want to spend because you have set a budget for it. This way you can’t be talked into just going a little higher when house shopping fever hits.

There will always be another house. No house is worth worrying about how you will make the payments.

Always make sure whatever debt you take on can be handled by one income. I’ve seen situations where both clients lost their jobs at the same time. 

You shouldn’t be declined for the mortgage if you have prepared and your affairs are in order.

If you are declined always find out the reason why. This is critical. You need to know why because then you can deal with it. You would be surprised how many people are declined and walk away and never ask why. They just keep shopping other lenders and it looks worse and worse on their credit bureaus.

Also, edited to add:

It is also wise to factor in your R&M for your home as a monthly expense. If you put away x amount per month for repairs and maintenance, you will be prepared for when the roof needs to be shingled or the house needs to be painted or the driveway repaved. This way you don’t have to go into debt for the regular and long term expenses that are part of home ownership.

One other point about homes, is when property values increase rapidly, like a property boom or property “bubble” as it is referred to.

I watched people in British Columbia fall into that trap. There were boom communities like Vancouver and the rest of the lower Mainland and Vancouver Island and in Toronto, Ontario. The boom spread to Kelowna just before I left.

The worst part were property owners believed that they were financial geniuses because their home suddenly skyrocketed in value. Instead of being grateful for their good luck (luck, timing and location), and remaining sensible, they treated their home and it’s new value as a big old ATM using lines of credit that were being handed out like Halloween candy by the local banks.

Cha-ching! There were Hummers, speed boats, seadoos, RV’s, home renovations among other toys that adorned the yards of local folks. 

They justified these purchases because the interest rates were so low and believed they could afford it because their house was worth x amount of money.

It was worth x amount. On paper, and not the kind of paper that is tucked away nicely in a bank account.

Real estate bubbles burst and have done so historically. John Kenneth Galbraith wrote an excellent book on The Great Depression and in it, he writes about the Florida housing bubble. It is worth a read.

I hope this helps, Robert. If you need anything else, I will be around. We are getting our late winter storm tomorrow.

 

Thank you for the very detailed explanation.  When I need to look for a mortgage, I’ll try and look up rates in advance before applying. 

Thanks again, and be safe in your storm tomorrow.

 

Happy to help out any time, Robert. Don’t worry. When the time comes you will do just fine.

Thanks for the good wishes re the storm. Only 4 days of snow reported coming – piece of cake…lol