Prior to closing, your private lender will have arranged how you will pay your debt. Although we cover what private money loan servicing is in the “parties involved” section of the Lending Guide, this article talks about the actual process of paying a private money loan.
Read on below for what happens after your loan closes, but first – other articles in this series:
You Should Care About Private Money Loan Process
Step 1: Find Your Lender
Steps 2 & 3: Don’t Sweat the Negotiating Table
Step 4: Don’t Sweat the Negotiating Table
Step 5: Zzz…Don’t Sleep Through Loan Contract Review
Step 6: The Closing Table
Step 7: Pay Your Debt, Darn It
Boarding the loan
It may take several weeks for the loan servicer to add your loan to their system (called boarding the loan) so they can accept payments, send statements to you, etc. As part of your disclosure packet, you will have instructions on where and how to make the first payment. This is especially true in cases where the lender will not have yet boarded the loan before the first payment’s due date.
Other times, as part of your closing you or the lender will prepay the interest for 30 days to give the servicer additional wiggle room.
Don’t wait for your statement to being paying your private money loan
Your contract outlines your loan repayment terms. Whether or not you receive a statement, you must pay according to the loan’s terms. Many private lenders do not send a monthly statement as you may be used to with bank loans. Always direct your payment only to the party outlined in your loan contract and keep records of having done so.
Sometimes the private lender or private investor will sell your loan note to another investor. This may or may not change who and how your loan is serviced. Until you receive written notice documenting the new loan servicer, continue paying a private money loan (and keep record of those payments) to the old servicer.
If your loan is sold and there is a new servicer
Always refer to your loan contract to ensure that the new servicer is managing the loan correctly. If your contract specifies when and how you send payments regardless of the servicer, the new servicer must follow the original terms. If the servicing fees are specified and not subject to change, your new loan servicer cannot charge a different fee.
This advice holds true even if your loan servicer stays the same. If you notice a change in how any part of your loan is executed, your contract is your lifeline and final say on how things are done. If something drastic changes, you will need to consult with an attorney and/or go to arbitration to remedy the situation.