by John Darer CLU ChFC MSSC CeFT RSP CLTC
Thinking about selling structured settlement payments?
IF you are thinking about selling structured settlement payments THEN ask the buyer "what is the effective 
discount rate?".
What is the Effective Discount Rate?
The effective discount rate is a more relevant figure (than simply the discount rate) because the effective discount rate includes the cost of all charges such as legal and processing fees. It is these types of charges that potentially push a consumer's effective cost of the transaction from single digits or low teen double digits to high teen double digits or more. The effective discount rate is your true cost of money. Many states, like New York mandate that the buyer disclose effective discount rate.
Compare Effective Discount Rate with Cost of Other Sources of Money, Potential Investment Returns
Compare the effective discount rate to what it would cost you to borrow using your credit cards, a home equity loan or other sources. If you are being led down the garden path for a so-called "alternative investment opportunity", consider if the projections you are shown are realistic, that they are most likely NOT guaranteed AND that you must first make up the amount you are losing by "paying" the effective discount rate to the buyer of your structured settlement payments.
Other reading relevant to the subject of effective discount rate:
- Structured Settlement Transfers: What's Your Deep Discount Rate? February 17, 2006
- Good Comes From Badlands As Dandy Randy Spits Out Peach Pit February 19, 2007
If you are thinking about selling structured settlement payments read this first
Last updated April 3, 2024
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