Structured settlements provide long-term or lifelong payment streams to recipients. However, life’s unexpected costs may leave structured settlement recipients in need of immediate funds. Enter structured settlement loans ― an alternative financing option allowing recipients to access a portion of their future payments in lump-sum payouts. But borrowers must understand the pros, cons, and alternatives before moving forward.
How Structured Settlement Loans Work
With a structured settlement loan, a funding company provides an upfront payout of cash in exchange for partial rights to your future annuity payments. You get immediate money while repaying the debt through deductions from your settlement over an agreed term.
- You have a $500,000 structured settlement paying over 20 years
- A specialty lender approves you for a $100,000 cash advance
- They take a portion of each payment until the $100K plus interest/fees are fully paid
Borrowers can typically access 10% to 30% in upfront money this way. Approved advance amounts depend on:
- Size and length of the annuity
- State limits on transferrable funds
- Lender risk tolerance policies
Loans may carry interest rates from 6% up to 19.99%, necessitating excellent credit to get the best options.
Uses for Structured Settlement Cash Advances
There are several scenarios where structured settlement recipients seek cash advances:
- Cover emergency costs ― medical bills, home repairs, etc.
- Pay everyday living expenses due to lost work/income
- Produce a down payment for a major purchase
- Pay off high-interest debts via consolidation
- Start or invest in a business venture
- Fund a dream purchase − car, boat, vacation, etc.
Borrowers gain flexibility in using lump-sum payouts for important needs now rather than adhering to a fixed schedule of payments spaced over years/decades.
Pros vs Cons of Settlement Loans
If faced with the chance to receive cash now instead of annuity payments later, assessing the advantages and drawbacks helps safeguard your best interests.
- Quick cash to cover pressing or unexpected costs
- Rates often lower than credit cards or personal loans
- Flexible lending decisions including people with recent credit issues
- Chance to invest funds for higher returns
- Payments automatically deducted from settlement
- Higher total interest costs over the payment term
- Less future income from reductions to remaining payouts
- Possible struggles if counting on full settlement amounts
- Fees for setting up and maintaining the loan
- Violation of state-imposed payment transfer limits
Thoroughly review the loan details to confirm it aligns with your situation and standards.
Factors That Influence Loan Approval & Terms
Specialty settlement loan lenders review certain applicant criteria and settlement features when deciding potential offers. Key factors include:
- Credit history and scores
- Debt-to-income ratio
- Financial behavior and literacy
- Criminal history
- Size of remaining payments
- Length of payment term
- Transfer limits and state regulations
- Insurer and structure
Meeting common approval benchmarks helps secure reasonable interest rates and fees. Those include:
- 675+ credit scores
- 40% or lower debt ratios
- Clean criminal history
- Competent with finances
How Much Cash Can You Access?
So how much of your settlement can you reasonably expect to borrow against? There is no silver bullet formula due to influencing factors. But most lenders will approve loans worth 10% to 30% of remaining annuity payments.
For example, someone with $500K in outstanding payments may secure between $50K up to $150K potentially. Smaller annuities see advances on the lower end of that range, while larger ones qualify for upper limits.
The Structured Loan Process
If you decide moving forward with a structured settlement loan is your best path, learn what steps are involved with a typical deal:
- Application − Gather and submit documents outlining your situation
- Approval Decision − Providers issue offers listing proposed terms
- Review Terms − Compare offers to pick the best fit option
- Legal and Insurer Review − Courts and issuers vet and approve the transaction
- Contract Finalization − Ink loan docs and disclosure forms
- Funding − Lender transfers lump-sum payout, begins collecting payments
From start to funded payout, most loans require around 4 to 8 weeks depending on legal submission timeframes.
Alternatives to Settlement Loans
Looking into cash advance alternatives helps you make the most informed choice:
401(k) Loans − Qualified plans may permit borrowing against your balance.
Personal Bank Loans − Unsecured installment loans typically ranging from $1,000 up to $50,000.
Pawnbrokers − Lend based on the value of property given as collateral.
Auto Title Loans − Borrow using your paid-off vehicle as security.
Cash-Out Mortgage Refinance − Tap into your home equity without an additional monthly bill.
Debt Consolidation − Combines high-rate balances into one lower fixed payment.
Ask Family or Friends − An interest-free loan from people close to you.
Weigh alternatives against your particular needs and qualifications to chart the optimal cash flow solution.
Questions to Ask Settlement Advance Lenders
As you vet potential structured settlement funders, get clear responses regarding:
- Rates, fees, and loan sizing policies
- Payment deduction schedules and amounts
- Steps they take to ensure adherence to state codes
- Flexibility for early repayment or adjustments
- Average time from application to funding
- Reasons for potential offer declines
Asking thoughtful questions sets solid expectations and surfaces any provider red flags.
Frequently Asked Questions
Still evaluating if a structured settlement cash advance fits your scenario? Here are answers to some common additional questions:
Who qualifies for settlement loans?
Recipients with regular annuity payouts can likely obtain advances. Having strong credit and adequate remaining payments helps secure better loan packages.
Where can I get structured settlement loans?
Various national and online specialty lenders like Woodbridge Funding, Fairrate Funding and Nova Legal Funding offer these cash advances.
Are settlement loans taxable income?
No, cash advances against settlement payments do not qualify as taxable income or impact taxes paid on the payments themselves.
How much can I borrow against my structured settlement?
Advance potential typically ranges between 10% to 30% of remaining payments. Actual offers depend on personal factors and settlement details.
Do all states allow structured settlement transfers?
No, a few states like Maryland prohibit transferring structured settlement payment rights. Others have court involvement. Check local laws.
Structured settlement cash advances carry major financial implications recipients must contemplate. While the lump sum payout provides immediate flexibility, the total interest and reductions to future payments causes a loss of income that may become problematic over decades. Weigh all loan aspects and alternative funding methods before proceeding to make the choice ensuring your best interests.