Understanding Structured Settlement Loans

When a person wins a lawsuit, they may receive their payment as a structured settlement — and in some cases, they can choose between a structured settlement and a lump sum payment. A lump sum payment pays the entire amount of the settlement at once. A structured settlement resolves the settlement in regular payments over time. You might choose a structured settlement for tax purposes, since a lump sum payment may be taxed at a higher rate.

However, if you’re owed money through a structured settlement, you may find yourself in a situation where you need access to those funds. Unfortunately, changing the terms of the settlement may be difficult, expensive, or impossible. That’s where structured settlement loans come into play.

A structured settlement loan is almost exactly what it sounds like: An arrangement with a third-party (called a factoring company) that gives you access to money from your settlement. Technically, these loans aren’t “loans" at all, since you’re selling your structured settlement to the factoring company.

When you’ve completed the process, you won’t have to make repayments, and the company won’t check your credit score — you’re forgoing your right to collect your debt from the party that owes you money. In exchange, you receive a lump sum.

What to Consider Before Undertaking a Settled Structurement Loan

Many factoring companies advertise settled structurement loans online. They may offer different rates for their services and different levels of customer service. Customer service is especially important, since the process for obtaining your loan may be complicated, depending on your state of residence, the size of the loan, and other factors.

If you need access to settlement funds and you’re considering a loan, here are some important considerations to keep in mind:

• Terms vary for settled structural loans. You’ll need to carefully research several companies in order to find the best rates. Some companies may also offer larger amounts or a faster payout process — however, the total cost of the loan (also called the “settlement") is typically the most important factor to consider.
• You may need approval from a judge. Typically, a judge will need to evaluate your structured settlement loan before the factoring company can issue a lump-sum payment.
• Receiving funds can take time. Getting approval from a judge can take a month or more. Some companies offer cash advances when the process starts to make this easier.

Finally, you should consider other, less-expensive options before signing an agreement with a factoring company. Some structured settlement loans have high costs, and you may be able to borrow money from less expensive sources. Consider personal banking loans, mortgage loans, and other ways to get the cash you need.

You should still research structured settlement loans and compare options, particularly if you have poor credit or no credit, but consider all of your options before making a decision.

Using Online Resources to Evaluate Structured Settlement Loans

To research effectively, find as many structured settlement loan offers as you can. Keep detailed notes, using online resources to compare rates, cash advances, expected payment timelines, and other important factors.

As you review your options, you may notice that some companies offer larger cash sums than others. Until you’ve submitted paperwork, these advertised amounts are estimates. Factors that can affect the actual amount of your loan include:

• Your age, health, and future financial needs
• The cost of the structured settlement loan
• The size of the payments you’re selling
• The number of payments you’re selling
• The reason you need access to cash

If you have concerns that the total payout will be less money than you need, consider contacting the company to discuss your situation. Collect as much information as you can before taking this step — if you understand all of your loan options, you’ll be able to have a more knowledgeable discussion.

Before Getting a Structured Settlement Loan, Do Your Research

Structured settlement loans provide convenient access to cash, but if you depend on funds from a lawsuit to live comfortably, you should compare as many options as possible before selling your settlement. Don’t start any paperwork until you understand the market. In other words, you should look for quotes from at least 3-4 factoring companies to make sure you’re getting a good rate.

Researching quotes will give you peace of mind, and online resources make the process much easier. A structured settlement loan is a major financial decision, but by spending time reading about each option, you may be able to get the money you need quickly without overpaying.