Structured settlements is an agreement that one party would pay another as compensation for injury or damage sustained given at specific time periods over a given schedule. Often, instead of a one time payout, in order to lessen the gravity of the obligation upon the one paying out, an agreed upon schedule of specific amounts in a given time period is agreed and confirmed by an authority.This kind of agreement is often based on law and confirmed by judicial decree. Thus, once set, it is not easy to modify or change should circumstances change. The recipient would also benefit in terms of tax exemptions for this kind of income drawn from an existing asset. In other times though, there is a need for immediate money, so the next best recourse is obtaining a structured settlement loan.
What are Structured Settlement Loans?
In many jurisdictions, structured settlement loans are called structured settlement funding. The whole settlement is deemed as an asset and would then be the security provided by the recipient in order to obtain a loan. When the loan is approved, the payouts in the structured settlements would be used as payments for the principal of the loan and its interest.
The rates of structured settlements vary depending on the markets conditions and buyers. Another form of structured settlement loans come in the form of a buyout by a private investment firm of your settlement in exchange for a lump sum value.
The Pros of Structured Settlement Loans
There are beneficial effects or pros to be reaped should one undertake a structured settlement loan. These are the following:
a) The lump sum amount is received in a short period of time. Instead of waiting out a number of years to obtain full value of the settlement, structured settlement loans have the effect of advancing the full value to be received. There is though a matter of a discount as to the amount to paid as consideration for the assignment of the structured settlement;
b) The amount received would be of present value and not value less inflation over a number of years far into the future. This is important as inflation would decrease the value of the money received, effectively undermining the value of the settlement in the long run;
c) The loan can be turned into an income generating asset instead of merely a trickle amount received every specific period. When one takes structured settlement loans, the lump sum amount can be used to fund an investment which in turn can generate more funds instead of waiting as time passes for money, albeit small increments, would arrive for the recipient;
The Cons of Structured Settlement Loans
Even with the pros, there are still downsides or cons to the entry into structured settlement loans. These are the following:
a) The lump sum amount is a discounted amount of the face value of the structured settlement. In agreeing to structured settlement loans, the loans provided are below the value of the settlement amount.
b) The lump sum amount may be lost in one sitting. Unlike having the amounts given at specified periods as an installment, the payout of a discounted amount may lead the recipient on a spending spree. This can result in the loss of the income specifically set aside for the compensation of the injury or damage sustained.
As can be seen, deciding on having structured settlement loans is not an easy one to make. The recipient needs to weigh all the possibilities before making a decision. It is a matter of deciding if the money is best used now or wait for its value in the future. For more information read about settlement investments.