What is a Loan Sale?

A loan sale is a transaction conducted by the holder of a loan in which that loan is offered for sale to interested parties. Often, a bank or a similar type of institution will make use of this approach to generate immediate cash for the institution. As part of the transaction, the seller relinquishes all or part of the cash stream generated by the loan to the new owner, a move that often makes it possible for the selling institution to mark the loan as paid and remove any detail about the loan from its monthly balance sheet.

In some nations, a loan sale is conducted by a government-sponsored financial entity when a bank fails. Any loans still held by the failed bank are sold to other banks or institutions as part of the settlement process for the failed bank’s debts. When this occurs, the debtors typically do not see any interruption in the servicing of the loans. What is likely to change is the remittance address for making payments on the loans, as well as the online access to the account. In most cases, debtors are notified once the loan sale is complete and the loan is assumed by a new owner, and provided with new instructions for tendering loan payments.

The loan sale normally does not require that debtors be notified in advance that a sale is pending. In most nations, participating in the sale is limited to only qualified institutions. This means that the institutions that are invited to participate must be cleared by the entity conducting the sale. It is not unusual that one of the qualifications for participation is agreeing to continue providing service for the loans that are purchased, and not calling the loans early.

While in the past a loan sale was usually conducted at a physical location with representatives of the prospective buyers participating directly in the sale, the Internet has made it possible to conduct sales in a virtual environment. Banks may choose to sell loans via their own web sites or utilize a partner to manage the details of the loan sale. In either scenario, prospective buyers who qualify can obtain login credentials, assess the loans currently offered for sale, and initiate a purchase when they are ready to do so. With the online version of a loan sale, it is possible to initiate a funds transfer to the original owner, complete the transaction, and have control of the loan in as little as 24 hours.