What is a Structured Settlement Loan?
A structured settlement is an out-of-court settlement agreed upon between two parties. Also, for personal injury, plaintiffs receive monetary awards as compensation for the injuries. This is a settlement given to the plaintiff by the defendant as a structured deferred payment agreement that will last several years. Structured settlements are used when large sums are involved. Small cases with minimal payouts are usually done as awarded payments if the plaintiff wins. The types of lawsuits that qualify for structured settlement along with personal injury are motor vehicle and passenger injury, civil rights, work compensation, copyright litigation and divorce funding.
Structured settlements are also given to lottery winners who receive their winnings in structured payments over a specific period of time. Some investors and insurance companies are willing to make a lump sum payment to buy the structured settlement at present day value.
A structured settlement loan is not a loan in the conventional sense. It is possible to get a loan based on the amount the claimant is pursuing in a personal injury lawsuit. This is a structured settlement loan and is usually 10% to 25% of the amount the claimant is pursuing. It is different from a conventional loan because, unlike other loans, no physical collateral, employment history, capability to repay, a credit check or existing income are necessary. The only collateral is the merit or strength of the plaintiff’s case.
A structured settlement loan should not be provided by the plaintiffs counsel. The American Bar Association prohibits this as it could prove to be a conflict of interest. However, money may be owed to lawyers during a lawsuit and a structured settlement loan would be useful. Applying for this loan should not cost anything, but there may be added fees after the success of the lawsuit to cover the application and processing of the loan. The loan provider will want to talk to counsel to know what the chances are that the plaintiff will win the case. It is recommended to consult several loan providers before making a choice.
Another important aspect of a structured settlement loan is taxes. There are prescribed state and federal taxes that need to be paid before any money is received. There is also self employment levy that would be implemented for people who do not get Medicare and social security withheld. It is a good idea to consult a financial adviser as well as counsel who have experience in structured settlement loans.
Since loan providers need to make a profit, their repayment from the settlement gained will be more than the amount given in the loan. The loan may be 10% to 25% of the projected case value, but the repayment will be 20% to 40%. The loan is a no-risk loan, but the recipient will be losing money in the end. The interest rate will also be higher than a conventional loan. It could be from 4% to 9% depending on the value of the settlement.
It takes about 90 days for a structured settlement loan to be processed and the money given to the plaintiff. Also, the court must approve of the loan. There are many reasons why a structured settlement loan is a good idea. For older people, a twenty year pay out may not make sense, and having a substantial amount of money in a lump sum would be more useful. Also, for those who would like to invest in a business venture or pay college tuition, a lump sum would be better.
The lender should have a good reputation and have experience in structured settlement loans. This is why it is important to research lenders and take advice before choosing a company.