If you’re receiving structured settlement payments and need immediate cash, you might wonder if you can get a structured settlement loan. Unfortunately, the concept of a “structured settlement loan” is a misconception perpetuated by misleading advertising. In reality, you cannot borrow against your structured settlement or use it as collateral for a loan. However, there are alternative options available, such as selling your structured settlement payments for a lump sum of cash.
So, follow us along, and we’ll explain how you can get the immediate cash you need without falling for misleading advertisements.
Understanding Structured Settlements
A structured settlement is a financial arrangement that provides regular payments over a specified period, often due to a personal injury lawsuit or other legal settlement. These payments are designed to provide long-term financial stability and are typically tax-free.
While structured settlements offer a reliable income stream, they may not provide the flexibility to address urgent financial needs. This is where you should consider selling your future structured settlement cash. We’ll break down the process for you later in this blog.
Benefits and Limitations of Structured Settlements
Structured settlements offer several advantages, including:
However, they also come with limitations:
The Myth of Structured Settlement Loans
Many companies advertise “structured settlement loans” to get cash quickly while maintaining your payment stream. However, these advertisements are misleading, as taking out a loan against your structured settlement is impossible.
Why Structured Settlement Loans Don’t Exist
There are several reasons why structured settlement loans are not a viable option:
Misrepresentation in Advertising
Despite the impossibility of structured settlement loans, some companies continue advertising them. These companies may use terms like “loan” or “cash advance” to describe a purchase of your future payments. It’s essential to understand that these transactions are not loans but rather a SALE of your structured settlement rights.
Alternatives to Structured Settlement Loans
While you can’t borrow against your structured settlement, alternative options are available if you need immediate cash.
1. Sell Your Structured Settlement Payments
One option is to sell your future structured settlement payments for a lump sum of cash, also called Post Settlement Funding. This process involves working with a factoring company that specializes in purchasing structured settlement payments.
The Process To Sell Structured Settlement Payments
- Decision-Making: Determine how much of your structured settlement annuity you need to sell to meet your financial needs.
- Collecting Quotes: Reach out to several structured settlement buyers, also called factoring companies to obtain quotes and compare offers.
- Evaluating Discount Rates: Understand the discount rate applied to your future payments, as this will impact the lump sum you receive. A discount rate is the percentage by which the factoring company reduces the value of your future payments to account for the time value of money and their profit margin. For example, if you have $100,000 in future payments and the factoring company applies a 10% discount rate, you would receive a lump sum of $90,000.
- Court Approval: The sale of your structured settlement payments must be approved by a judge to ensure it is in your best interest as per the Structured Settlement Protection Act.
Advantages of Selling Your Payments
Drawbacks of Selling Your Payments
Tax Implications of Selling Structured Settlement Payments
Structured settlements are generally tax-free and are considered compensation for personal injuries or sickness. However, selling your structured settlement payments may have tax implications. The lump sum you receive from selling your payments is typically not taxed, but any interest or growth earned on that lump sum may be subject to taxation.
Eligibility for Selling Structured Settlement Payments
To be eligible to sell your structured settlement payments, you must meet certain criteria:
There may be additional restrictions based on the specific terms of your structured settlement agreement or state laws.
Review All The Settlement Buyers Carefully
When considering selling your structured settlement payments, it’s crucial to thoroughly research and compare different factoring companies. Not all companies are created equal, and some may offer better terms, lower discount rates, or superior customer service. Take the time to read reviews, check the company’s reputation with the Better Business Bureau, and fully understand the terms and conditions of the agreement before signing anything.
Court Approval Process For Selling The Structured Settlement Payments
The sale of structured settlement payments must be approved by a court to ensure that the transaction is in your best interest. This requirement is outlined in the Structured Settlement Protection Act, which is designed to protect structured settlement recipients from potential exploitation.
The court approval process typically involves the following steps:
The court approval process can take several weeks to a few months, depending on the complexity of your case and the court’s schedule.
2. Using Structured Settlements as Proof of Income
While you can’t use your structured settlement as collateral for a loan, you may be able to use it as proof of income when applying for certain types of financing, such as a mortgage.
Demonstrating Repayment Ability
Your structured settlement payments can demonstrate your ability to repay a loan, even if the settlement itself cannot be used as collateral. Lenders may consider your structured settlement income when evaluating your mortgage application.
Providing Documentation
To use your structured settlement as proof of income, you’ll need to provide documentation such as:
Impact of Selling Payments on Income Verification
If you choose to sell a portion of your structured settlement payments, it’s important to consider how this may impact your ability to use the settlement as proof of income in the future. Selling payments will reduce your future income stream and may affect your eligibility for certain loans.
Considerations Before Selling Your Structured Settlement
Before deciding to sell your structured settlement payments, it’s crucial to consider your options and weigh the potential consequences carefully.
Determine Your Best Interest
The court approval process for selling structured settlement payments is designed to ensure that the sale is in your best interest. Consider whether selling your payments will improve your overall financial situation or if there are alternative options available.
Explore Alternatives
Before selling your structured settlement, explore alternative options such as:
Seek Independent Financial Advice
It’s essential to seek independent financial advice before making a decision to sell your future structured settlement payment. A financial advisor can help you evaluate your options, understand the long-term implications of selling your payments, and make an informed decision.
Understand The Legal Fees and Costs
Selling your structured settlement payments involves legal fees and costs that can impact the final lump sum you receive. Make sure to factor these costs into your decision-making process and understand the net amount you’ll receive after all fees are deducted.
Lawsuit Loans, Pre-Settlement Funding Controversial
Before you’ve settled your case, you may find yourself in need of money to pay bills. In that case, you can seek a lawsuit loan, also known as pre settlement funding.
There are several names for this type of lawsuit settlement loan, including lawsuit advance, third-party consumer litigation financing, pre settlement loan, legal funding, non-recourse advances, and alternative litigation financing.
Fact: These loans are controversial, and the laws in each state differ.
The states and advocates don’t even agree whether to call these transactions loans or advances. This has implications about whether there are legal limits on interest rates.
How These Transactions Work
In general, companies that offer these products want documentation about your legal case. If they are confident you have a good chance of winning, they may advance money against your award or settlement. If you win, you repay the advance, plus interest, from your award. If you lose, you owe nothing.
Beware of Excessive Interest, Fees
The interest and fees on these pre settlement lawsuit funding loans or advances can be excessive. A Cornell Law Review study in April 2018 found that the companies that fund them “used various types of interest compounding, minimum interest periods, interest buckets and fees to add costs to the contract.” It’s best to proceed with caution when pursuing this type of funding.
Conclusion
While structured settlement loans may seem like an attractive option for accessing cash quickly, they simply don’t exist. Structured settlements cannot be used as collateral for loans due to legal restrictions and their lack of physical assets. However, selling your future structured settlement payments for a lump sum of cash is a viable alternative if you need immediate funds.
So, if you’re considering selling your structured settlement payments, it’s essential to work with a reputable factoring company that prioritizes transparency and customer service. Take the time to thoroughly understand the terms of the agreement, including the discount rate and any associated fees, before signing on the dotted line.
Remember, while selling your structured settlement payments can provide immediate financial relief, it’s not a decision to be taken lightly. Carefully evaluate your options and seek guidance from trusted professionals to make a choice that supports your long-term financial well-being.
Frequently Asked Questions
