If you need a set amount of cash, work backwards from that amount. Sell the smallest number of payments that raises it and keep the rest of your note, so that the size of the sale matches the size of the need.
The natural first question is what the note is worth. A buyer answers with a price for all of it, and the decision becomes yes or no to that one figure. If what you actually need is $40,000 for a roof and a tax bill, a price for the whole note answers a question you did not ask.
Naming the amount first
A partial sells a set number of your future payments for a lump sum. The buyer collects those payments and then the note comes back to you. Because you choose how many payments go, you also choose roughly how much cash comes in.
So the conversation runs the other way round from a full sale. You give the amount, and the buyer tells you how many payments it takes to raise it. Whether a buyer will write a partial at all depends on the note: recent late payments, thin equity in the property or a short remaining term can each rule it out.
What belongs in the target
The figure on the bill is the starting point, and several things can push the target above it. Before you ask for a quote, add up:
- The bill itself. The contractor’s estimate, the payoff figure on the debt, the down payment, the tuition invoice.
- Costs of the sale. Ask whether the cash figure on an offer is what reaches your account, or whether title, recording or legal costs come off it.
- Tax. Money from selling payments may be taxable, and the treatment depends on your situation. Speak to a CPA before you size the sale, so that tax does not leave you short.
- The income you give up. While a straight partial runs, the monthly payment goes to the buyer. If you live on it, that gap has to be covered from somewhere.
A modest cushion on top is sensible. A large one is expensive, because every extra payment is sold at a discount, meaning the gap between what the payments add up to and what a buyer pays for them today.
From a dollar target to a count of payments
The table prices one note at four sizes. It pays $1,140 a month, has 168 payments left and about $129,400 still owed, and the buyer is pricing to an 8% yield.
| If you need about | Sell | Payments you keep | Total you receive |
|---|---|---|---|
| $36,400 | The next 36 payments | 132 | $186,880 |
| $56,200 | The next 60 payments | 108 | $179,320 |
| $73,100 | The next 84 payments | 84 | $168,860 |
| $115,000 | The whole note | 0 | $115,000 |
Illustrative example. “Total you receive” is the cash today plus the payments you keep, added up as scheduled. It assumes the payer keeps paying and makes no adjustment for the value of money over time. Keeping the note with no sale would total $191,520.
Your own target will fall between rows, and that is fine. A buyer can price any number of payments, so a need of $45,000 on this note would be met by a count somewhere between 36 and 60. To find the count on your own note, send us your note details along with the amount you need.
The price of rounding up
Look at what each step in the table costs before you round your target upwards. Moving from 36 payments to 60 raises $19,800 more today, and for that you hand over 24 payments that add up to $27,360. Moving from 60 to 84 hands over another 24 payments, worth the same $27,360 as scheduled, and this time raises only $16,900.
The same 24 payments buy less cash the further out they sit, because the buyer waits longer for them and discounts them harder. The first dollars raised in a partial are therefore the cheapest, and padding added “to be safe” is bought at the dearest end of the sale. Keep that in view when you choose how many payments to sell.
Where a partial fits and where it strains
| The need | How a partial handles it |
|---|---|
| A one-time bill of a known amount, such as a repair, a medical bill or a debt to clear | Fits. The sale can be sized to the bill. |
| A down payment | Fits, if you can live without the monthly payment for a few years. |
| A need well below what the note would sell for | Fits. The wider that gap, the more of the note a full sale would give away for cash you did not need. |
| A need close to the full-sale price | Strains. You would keep only a short tail of payments, and a full sale may be simpler. |
| A shortfall that repeats every month | Strains. A lump sum does not fix it, and a straight partial removes your monthly income while it runs. A split-payment partial, where you sell part of each payment and keep the rest, may fit better. |
| Money due before a sale can close | Strains. A buyer has to check the note, the title and the property before paying, so ask for a realistic timetable at the start. |
The payer matters to every row. You are keeping the back end of the note, so its value to you rests on the payer still paying when it returns. If payments have already been arriving late, the partial price drops and your retained payments carry more risk, which is a reason to ask for a full-sale price alongside. Where the bill is urgent, as it is when you are selling a note for a medical or family emergency, ask each buyer how long its checks take before you count on the money.
Borrowing, or waiting
Measure a partial against other ways of finding the money as well as against a full sale. A loan leaves the note untouched, but you have to qualify for it and repay it from your own income, whereas a partial is repaid by the payer’s payments. Which costs less depends on the loan you would be offered, so compare a partial sale with borrowing against your note on real quotes for both.
Waiting is the other candidate. If the bill can be met from the monthly payments over a year or two, keeping the note costs you nothing in discount.
Wording the quote request
Tell the buyer or broker the amount you are trying to raise and the date you need it by. Then ask for the number of payments that raises that amount, the price one step smaller and one step larger, and a full-sale price for comparison. Those four figures show what each choice costs.
If the count that comes back is far above what you expected, go back to the target before you accept. Trimming the cushion, or meeting part of the bill from the next few monthly payments, may bring the sale down to a size you are comfortable giving up.
Related questions
Can a partial be sized to an exact dollar amount?
Close to it. A buyer can price any number of payments, so you can ask how many it takes to raise your target. The result lands within one payment of the figure you asked for.
Should I sell a few extra payments to be safe?
Keep the cushion small. Each extra payment is sold at a discount, and the later payments are discounted hardest. A modest margin for costs and tax is sensible. A large one is expensive.
What if my cash need is bigger than a partial can cover?
No partial can raise more than the full-sale price of the note. If your need is close to that figure, ask for a full-sale price and compare. If it is higher, a note sale alone will not cover it.