Seller financing is an arrangement whereby the Seller provides a loan to the Buyer as part of the purchase agreement.
The Seller agrees to receive payments over time from the Buyer instead of receiving the entire proceeds of the sale at the time of closing the transaction. Essentially, the proceeds are “loaned” to the Buyer who then makes payments on an installment basis. The sale transaction can involve a variety of things; real estate, businesses, vehicles and other assets.
The Buyer signs a Note and Deed of Trust or Contract of Sale in the Seller’s favor that places a lien on the property and thereby secures the loan. The roles of the Seller and Buyer now become Lender and Borrower.
The Seller, now acting as the Lender, collects payments from the Borrower, including interest on the money, until the loan is paid in full.