5 Loan Modification Negotiation Strategies

Entering a loan modification negotiation will allow you to create a more favorable loan contract. Just how favorable your ultimate contract is, though, depends on how effective your techniques in arguing for your best interest are with your current lender.

#1 Write a Hardship Letter

The first move you should make when you modify any loan is to see if your current lender is willing to work with you directly. If so, you can restructure your loan with minimum penalties. Start by writing a hardship letter explaining why you cannot continue to make payments at the current level. This will only be effective if you have consistently made payments in the past and can show a pressing emergency that will prevent you from doing so for a given period of time in the future.

#2 Compare Market Loans

Another strategy is to show why your loan is no longer competitive on the loan market. This is particularly a possibility if the national prime interest rate has dropped substantially. If you took your loan at a certain rate over prime, you will likely be able to achieve a new loan at the same cut over the lower prime rate. By drawing your lender's attention to the fact you can get a better loan elsewhere, you are offering them a chance to make your loan more competitive before you take that next step.

#3 Offers to Settle the Debt

Lenders will not often turn down the chance at an immediate payment for the vast majority of the sum remaining on your loan. You can provide an immediate payment of the principal sum, plus some degree of the interest you would be assessed, and still save money on the loan over time. This only works if you have the cash. You may seek an outside loan in order to get that cash, but you will have to make payments to this new lender. Only pursue this option if the new lender offers you a deal that will still save you money in the long-run.

#4 Seek Third-Party Assistance

You will save money in the process of negotiation if you do not use a third party. However, you may still save money over time by using a financial adviser to get you a better deal on your loan. You may contract with a debt consolidation company, use your attorney or ask an accountant for assistance. It is best to seek an adviser with experience in loan modification. Where possible, use an organization that has worked with your lender before and has a good record with them.

#5 Use Legal Protections

When all else fails, you can use the protections provided to you by the court system to get a better deal on your loan modification. You can ask a judge to consider your hardship letter in order to restructure the debt. In most cases, this will only be successful if you are eligible for Chapter 13 reorganization. To qualify, you must be able to show there is no reasonable manner for you to continue paying your debts at the going cost.