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Step 1
Obtain copies of your current credit report from all three of the main credit reporting agencies. Even though you will pledge some type of collateral, potential lenders will still review your credit history. Since you have no idea in advance if a given lender consults one or all three of the credit reporting agencies, it is a good idea to know what is showing up on each one. Keep in mind that a derogatory item may appear on one report but be missing from the other two. By reviewing all three, you can be prepared to proactively address any negative remarks and hopefully minimize their impact.
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Step 2
Identify the amount of money you need to borrow. Compare the amount you have in mind with the actual expenses involved in whatever use for the money you have in mind. Make sure that the amount is reasonable in terms of successfully achieving your goal and adjust the figure upward or downward as necessary.
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Step 3
Decide how much you can reasonably manage in terms of monthly installment payments. To this end, prepare a workable monthly budget. It is important to demonstrate that you have enough net income to cover all your current obligations as well as honor the monthly payment on the proposed loan.
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Step 4
Create an inventory of assets that lenders can consider for collateral. While just about every lender will consider real estate or motor vehicles, there are lenders who will also accept stocks, bonds and other assets that have an established cash value. Make sure that the assets you list are sufficient to cover the face amount of the loan.
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Step 5
Begin with your local banker. Your established relationship may aid in your quest of securing a loan at the lowest possible interest rate. At the very least, the experience will provide you with a point of reference on the type of interest rates you can hope to receive.
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Step 6
Compare offers from your local banker with at least a couple of other lending institutions. Be sure to look past differences in interest rates and monthly installments to determine if there are any hidden fees or charges that would inflate your obligation at some point during the life of the loan. This includes such factors as when and how late fees are accessed, any grace periods extended without any type of penalty, and if there is a penalty for paying off the loan early.
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Step 7
Negotiate for the lowest interest rate coupled with the most favorable terms possible. When a potential lender learns you have discovered that another lender will offer you comparable terms at a lower interest rate, or will provide additional privileges for the same rate of interest, it is possible that the offer will be matched or even exceeded. Depending on the current economic climate, and your personal situation, you may find lenders very willing to negotiate.
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Step 8
Review all the loan documents thoroughly before signing anything. It is important to verify that the terms and conditions outlined to you by the lender are documented in the loan agreement. If they are not, ask they be included. Should the lender balk at adding the promised terms to the agreement, take your business elsewhere.
