Seeking to remodel a kitchen or looking for ways to free up some cash for another purchase?
One way to save big bucks is to be a better negotiator when taking out a loan. Whether it’s a new or refinanced mortgage or car loan, financial experts say consumers are leaving thousands of dollars behind by simply not asking for better terms. That means less money to buy home items, add after-market improvements for a car or spend on other goods.
David Osborn and Paul Morris, authors of the New York Times-best-selling book “Wealth Can’t Wait,” said people negotiate the house’s price, but never consider negotiating with their lender, even though it may eventually save them more money.
“If you negotiate down one-eighth of (an interest-rate percentage) point and live there 30 years, it could be $50,000 in savings. You should negotiate harder over the money than you do over the price of the house,” Osborn said.
Similarly, few people negotiate car loans, said Miron Lulic, founder and chief executive officer of SuperMoney, a financial-services platform. Citing data from the Federal Reserve, 76 percent of people negotiate the car’s price, but only 31 percent of people negotiate their car’s loan. When it comes to car loans, dealers know buyers will focus on the payment, not the total cost of ownership, he said. That means the dealer’s finance office can hide ballooning payments later in the life of the loan.
To save money — which could be spent elsewhere — start by shopping for loans. For mortgages, home buyers should apply with at least two lenders, say Osborn and Morris. Greg McBride, chief financial analyst at Bankrate, agreed.
“Doing so gives you a couple of advantages. One, it helps you sort out who’s got the best deal. And it also gives you somewhat of a bridge in negotiating things like rates and fees paid,” McBride said.
Try to apply with different lenders in the same day, but don’t worry about having multiple inquiries hurting credit scores, McBride said. Multiple inquiries within that 30-day period are treated as one.
McBride said to consider mortgage application fees and other costs when comparing lenders’ offerings. These include fees charged by the lender to provide the credit, as well as third-party costs passed on to the applicant, including for appraisals, credit reports, home inspections, title insurance and taxes.
A home buyer can try to negotiate a lower fee or choose a different third-party vendor for those services.
Watch out for “junk fees,” McBride, Morris and Osborn said, such as high processing fees or delivery charges. Lenders can waive or lower their fees, Morris said.
“Are they entitled to a $100 processing fee, sure. One thousand dollars? That’s excessive,” Morris said.
If the mortgage lender says there are no closing costs, it is likely the lender is charging a higher interest rate to make its money, Osborn said.
Like house hunters, car shoppers should also shop for loans ahead of time before heading to the showroom, McBride and SuperMoney’s Lulic said. Car financing is completely negotiable, although in the dealer’s finance office, there’s little transparency, Lulic said. The average new-car loan is now close to 70 months, according to car-research website Edmunds.com.
Having loan offers in hand gives buyers both knowledge and leverage, they said, and can be used as a fallback option if the dealer’s offer isn’t as good. Buyers who take the dealer’s offer need to scrutinize all fees and question the purpose. Avoid the hard sell by being willing to walk away, they said, which is easy to do with a new car purchase since there’s usually another dealer close by.
Considering the average new car loan is closing in on six years, Lulic said it can be worthwhile to look into refinancing an expensive car loan.
“You can save a ton of money, maybe even shorten the life of the loan,” he said.
Debbie Carlson is a freelance writer.
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Mortgage, new car? Negotiate loans to save big money on purchases - Chicago Tribune
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