A note with a 0% rate can be sold. Expect a deeper discount than on a note that charges interest, because the buyer’s whole return has to come out of the price they pay you.
Where the buyer’s return comes from
Someone who buys a note needs a return on their money, and buyers measure it as a yield.
When a note charges interest, part of that yield arrives in the interest the payer sends each month, and the rest comes from buying the note for less than its balance. Take the interest away and the gap between the balance and the price has to do all the work. So for the same balance, payer and property, the 0% note sells for less than one with a rate on it, which is how the interest rate affects a note’s value at any level.
How much less depends on the payment, the term left and the property behind the note, and a range quoted here would be a guess. For a figure on yours, send us those details.
Why the length of the note matters so much
A buyer discounts each payment according to how long they wait for it. A payment due next year loses a little, and one due in fifteen years loses a great deal. Interest normally offsets some of that wait, and a 0% note has none, which makes the remaining term the biggest influence on its price. A zero-interest note with three years left will be discounted far less than the same note with twenty years left.
One feature works in your favor: with no interest in it, every dollar of each payment reduces the balance. As an example, $500 a month on a $60,000 balance at 0% clears the debt in 120 payments, which is ten years. The same payment on a note that charged interest would take longer, so the buyer of a 0% note gets their money back sooner.
The rest of what a buyer weighs
The checks made on any note still apply. Equity, meaning what the property is worth less what is owed against it, protects the buyer if the payer stops paying. A long run of on-time payments that you can show from bank records supports the price. If the note ends in a balloon, a large final payment, the buyer has to believe the payer can make it.
How the note came about makes no difference to whether it can be sold. Like the other types of private note, a zero-interest note is bought on its terms and its security. Zero-interest notes turn up in family sales, in deals where the price was set higher in exchange for charging no interest, and in small land sales written without advice.
Selling only the near payments
Since the distant payments are discounted hardest, selling the whole of a long zero-interest note gives up the most. A partial is the sale of a set number of upcoming payments, after which the note returns to you. It lets you sell the payments buyers pay the most for and keep the later ones, and how many payments you should sell comes down to the cash you need now. Whether a buyer will take a partial depends on the note: a small payment or a short remaining term can leave too little to divide.
A tax point to raise with your CPA
Tax rules can treat part of each payment on a no-interest or low-interest note as interest even though the note says otherwise, an idea known as imputed interest. Whether it applies to you, and how, depends on the size of the note, who the parties are and when it was written. Ask a CPA how your payments have been reported so far and how a sale would be treated before you agree to one.
Sell it or hold it
If you do not need the cash and the payer keeps paying, holding a 0% note to the end collects every dollar of the balance, which is more than any buyer will pay you for it. A sale earns its discount when you need money now, when the payer worries you, or when an estate has to be divided in cash.
To make that choice with a figure in front of you, count the payments left and multiply by the payment to get the total still due. Set any offer beside that total. The difference is what the sale would cost you, and on a 0% note it is easier to judge as a dollar amount than as a percentage.
Related questions
Why would anyone write a note with no interest?
It happens in family sales, in deals where the price was set higher in exchange for a 0% rate, and in small land sales done without advice. The reason does not affect whether the note can be sold. It only affects how a buyer prices it.
Can I add interest to the note before I sell it?
Only if the payer agrees to change the terms in writing, and they have little reason to. Any change to a note should be drafted by an attorney. Selling the note as it stands is the simpler course.
Is a short zero-interest note easier to sell than a long one?
Yes. Buyers discount distant payments the hardest, and a 0% note has no interest to offset that. A note with a few years left loses far less to the discount than one with many years to run.