Now that you’ve won a personal injury lawsuit, you’re probably thinking about selling part of the settlement to a settlement company in exchange for a lump-sum to cater to your immediate financial needs. Well, this is one way to get immediate cash without having to wait a month or more to receive your first payment.
Obtaining a loan against your structured settlement is another viable option. After all, there is a guarantee that once your settlement is processed in about a month or two, you will have some money in your account.
Is it really a loan?
A structured settlement loan isn’t really a loan since all you’re waiting for is the finalization of the settlement. Experts like to call it a structured settlement funding.
A structured settlement loan company will “buy-out” your structured settlement in exchange for an immediate lump-sum.
Furthermore, the lender won’t need to view your credit record or require any collateral to give you the loan. It’s usually more or less like a cash advance on a case that you’ve already won.
Loan Interest Rates for a Structured Settlement
One of the most important things to consider before applying for a structured settlement loan is the interest rate.
There are different structured settlement loan companies, and each one of them has different policies regarding loan rates. Of course, the most critical feature to evaluate in these companies is whether you’re getting the most favorable rates for your future payments.
Your financial advisor in conjunction with a structured settlement broker can work out a plan on getting you the best rates possible.
In addition to the loan rates, it’s also important to review any fees/charges and costs involved as they will also be considered when calculating the lump-sum you will receive for your settlement payment, while incorporating the involved costs.
Gary Chodes, founder and CEO of Oasis Legal Finance in Northbrook, Ill., and a founding member of the trade association for the industry, the American Legal Finance Association (ALFA), says a lawsuit loan of $1,000, depending on the length of the loan, “might typically result in repayment of $1,300 on the low side and $2,200 on the high side.”
Why are Structured Settlement Loan Rates Higher than Bank Loan Rates?
One of the disadvantages of taking a structured settlement loan is high-interest rates. This is due to the fact that the loan you’re being offering isn’t free and is therefore subject to interest rates.
Although interest rates for such loans vary depending on factors such as the lender, state/federal laws, amount of settlement, including others, in general, the loan interest rates are higher compared to those of banks.
Structured Settlement Loan Rates and Inflation
Another thing to consider when taking a loan against your structured settlement is inflation.
Will inflation affect the loan rates? Well, this usually depends on the state, the lender, and the amount you intend to borrow. Although many structured settlements do not adjust with inflation, the rates may in some cases increase or decrease with inflation.
Higher loan rates will lead to reduced future payments.
Structured Settlement Loan Rates and Discount Rates
When you agree to obtain a loan against your settlement, you will be giving up a portion of the full value of your total settlement, meaning that you must “sell-out” at a discount. After all, the lender is giving out this loan to make a profit.
In this case, be sure to choose a company with low discount rates as this will significantly lower your loan rates.
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