Is it what you pass to your fellow students when the teacher isn’t looking (I guess I’m dating myself, when I was in High School we didn’t have cell phones, Twitter, etc)
No, in this case a note is short for promissory note or a “promise to pay.” You may know of this as a loan if you have gotten a car loan, a mortgage loan or a personal loan. In that note outlines who owes whom how much, the frequency of payment, the interest rate and the date in which it is to be paid back. It is written up and signed by both parties and is in force until the final payment is made.
Now taking one step further, there are generally 2 types of notes; unsecured and secured. Unsecured is essentially it is backed via a gentleman’s agreement, or as the US government puts on their treasuries “backed by the full faith and credit of the United States Government.” It is simple based on trust and reputation. Credit cards and personal loans are great examples of this and typically why you have higher interest rates on these type of loans.
The second type is secured. Basically the loan is secured by something of value so that in the instance of default the loaner can repossess the asset. Car loans, mortgages and home equity loans are examples of this and since they are secured, typically they will carry lower interest rates.
Now, to get a loan, where do you go? Typically, ‘the bank’ is the answer everyone gives. And that is not a bad way to go. Now let’s look at the flip side of this. Say you have a sum of money, be it $25 or $25,000 or anywhere in between. Now what can you do with that money to earn something? Put it in the bank at a savings account and maybe get .05% interest rate on it? The other option is simply to BE the bank.
While everyone seems to be conditioned to go to bank to get a loan and banks are the only places to GET loans (besides say payday loan entities which I would NOT recommend), really only two parties need to exist for a note to be created; one who NEEDS money and one who HAS money. If you have money and are wanting to make a return on it, why not loan it to others and BE the bank? You earn a return, the other gets the cash they need. It is a win-win situation.
Now how does one actually DO this? Well, I would start small personally and thankfully there are numerous services online that can help with this. Peer to peer lending has really exploded over the last 10 years, www.lendingclub.com and www.prosper.com are two of the most popular services where you can buy portions of a loan for as little as $25. I personally have invested in Lending Club since 2014 and now earn over $1,000 a month while technically getting an infinite return (I’ll touch base on both of those in a later blog post).
Once you get started and get comfortable with it, you can graduate to higher amounts, larger investments and even get into secured notes. As of this writing I currently am invested in 2, first position lien notes with real estate investors in my Solo 401k which brings in just under $1,000 a month, every month into my retirement plan. Beats the ups and downs of the stock market ?
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