Buying Loans from Other Lenders
Buying existing loans is a popular way to invest in loans without all the paperwork and screening that comes with loan origination. Many lenders work closely with a business that originates loans, cherry picking their favorite loans from the loans the business is looking to sell. Most commonly, I’ve seen this with car dealerships, but it’s also very common with mortgages, personal loans, construction loans, and many other types of loans. If you are considering purchasing existing loans here is some information to help you get started. Purchase price isn’t necessarily the principal balance on the loan. The loan may have a face value of $4000, but you might buy the loan for $3000 or $4500, depending on various circumstances. Most commonly, a loan will be priced higher if the rate on the loan is higher than the current industry rates. You might pay $4500 for that $4000 loan if it’s at an interest rate of 12% where currently, an equivalent borrower would be able to get a loan at 8