A structured settlement loan is a financial arrangement where a company agrees to pay a lump sum cash to a person who is receiving a structured settlement. In exchange, the company takes over receipt of the structured settlement payouts.
A structured settlement loan isn’t really a loan; it is a buyout, and there are pros and cons for the person receiving the money. If you are currently receiving a structured settlement and considering a loan, it is important that you understand the process before making a decision.
If you require personal injury legal funding, it is smart to choose a reputable company you can trust. Our team has been assisting people in need of cash since 2007. Contact us today to learn how we can help.
What Is a Structured Settlement?
A structured settlement is a legal agreement that allows an individual to receive compensation from a lawsuit through scheduled payments over time, rather than as a one-time lump sum. Such arrangements are frequently seen in personal injury settlements.
After the plaintiff and defendant agree on a settlement amount, the defendant or their insurance provider usually buys an annuity from a life insurance company. This annuity finances the structured payments.
How Do Structured Settlement Loans Work?
A structured settlement loan is not a loan; it is a buyout of future structured payments. If a recipient of a structured settlement needs immediate cash, they can sell part or all of their future payments to a third-party company in exchange for a lump sum.
While this can be helpful in emergencies or for paying off debt, the lump sum offered is usually less than the total of the future payments. These transactions require court approval, as judges must ensure the deal is in the seller’s best interest.
Benefits of a Structured Settlement Loan
For some people, a structured settlement loan is a better option than monthly payments. Some of the benefits of trading your settlement payments for a lump sum of cash include:
- Immediate influx of cash: You receive a lump sum payment, which can be used to cover urgent needs such as medical bills, home repairs, and debt.
- Flexibility: There are no limits on how you can use your funds once received. You can spend, invest, or pay off debts.
- No repayment: Because a structured settlement payment loan isn’t really a loan, you don’t have monthly payments.
- Option to sell all or part of your settlement: You don’t have to give up your monthly payments entirely. You can choose to trade only a portion of your award for cash.
- Court oversight: A structured settlement payment loan must be court-approved. This helps to ensure your safety and that your agreement is fair.
Downsides of Structured Settlement Loans
Structured settlement loans aren’t for everyone, and there are negatives to consider. Here are a few things to think about when deciding if this arrangement is right for you.
- You receive less than full value: Companies that purchase structured settlements do so at a discount. You will get immediate cash, but it won’t be as much as you would have received over the life of the payments.
- Loss of future income: Your payments are an income source you can’t recover once you’ve agreed to a structured settlement loan.
- Court time: Because your arrangement requires approval by a judge, it can take weeks or months to get the money you need.
- Potential for exploitation: It is very important to do your due diligence when choosing a company. Many are reputable, but some seek to take advantage of people in a time of financial desperation.
Alternatives to Structured Settlement Loans
You may have other options, depending on your financial situation and personal risk tolerance. Always weigh your decisions carefully, and consider speaking with a trusted attorney or financial advisor.
Some alternatives to structured settlement loans include:
- Lawsuit cash advance: Unlike a structured settlement loan, with a lawsuit cash advance, you receive money before your settlement is finalized. You do need to repay the advance, but often only if you win your case.
- Personal loan: If you qualify for a personal loan, this may be a better option than giving up your structured settlement payments. However, you will need to deal with repayment and interest rates.
- Home equity loan: If you have equity in a home, you can leverage it for a loan. This can be easier to deal with compared to personal loans, as a home equity loan may be rolled back into your mortgage payment.
Should You Accept a Structured Settlement Loan?
A structured settlement loan is a smart move for some people, but not for everyone. If you need funding quickly, it can provide an influx of cash in one lump sum. However, your lump sum won’t be as much as you would have received had you taken the payments over time.
Alternatives to structured settlement loans may allow you to keep your monthly structured payments, but could involve incurring debt or leveraging your home. If you do choose to work with a legal funding company, it is important to find a reputable resource.
At Pegasus Legal Capital, our goal is to be your trusted legal funding partner. We offer ways to get people the money they need when they are going through a difficult time due to an accident, injury, or legal dispute. Contact us today and tell us your story.