How to Negotiate an Interest Rate for a Person-to-Person Loan

If you find yourself a little short on cash but the lending institutions want you to pay an arm and a leg for a loan, you may want to find alternative methods to pay the loan. The problem with getting a loan from an individual is setting personal loan rates, but knowing the right steps can help you negotiate.

Things You'll Need

• Bank CD rates
• Bank loan rates

Instructions

1. Check the local interest rates at banks on both certificates of deposit and loans.

2. Add the two interest rates and divide by two. This is a number that is a starting point for the loans. If the bank loan rate average is 8 to 10 percent and the certificate of deposit rate is at 4 to 6 percent, 9 would be the average for the loan and 5 for the certificate of deposit. Add those together and the rate is 7. This is a starting point for a personal loan rate.

3. Ask the person that you're borrowing from what interest rate she would be happy to receive. If the rate is lower than you calculated, volunteer to go a quarter percent higher. That may sound silly, but it makes you more credible and you still get a heck of a deal. Most of the time the other party will insist on her personal loan rate but your esteem goes up in her eyes.

4. Suggest a rate somewhere between the bank rate offered (or the highest rate if the bank would not loan you money) and the rate suggested by the other party if his rate is higher. Explain that he could only average X percent on a CD.

5. Agree on terms. Sometimes certain terms make the loan more palatable to the lender. Some personal loan rates can be lower if the lender gets a payment over a long period of time with no allowance for prepayment.

Tips & Warnings

• Make sure that you write everything on paper and have it notarized. This protects everyone.

• Even if you borrow from Mom, make sure that the interest is within reasonable loan rates, or the difference in interest could be counted as a gift on larger loans.