by John Darer CLU ChFC CSSC RSP
Discount rates vary widely by factoring company, by type of cash flow, by annuity issuer and whether or not the discount rate includes legal fees and other charges or costs to complete the transaction.
Rates could vary from 7-19% [ Note: In 2013 the rates may be more competitive depending on the cash flow]
Make sure you measure using the effective discount rate (i.e one that considers ALL charges and fees)
Example 1
Say you wanted to sell a $100,000 lump sum payment due on January 5, 2012
At a 19.2% effective discount rate, the cash lump sum would be around $78,000
At an 8.1% effective discount rate, the cash lump sum would be around $90,000
Example 2
Say you wanted to sell 120 monthly payments of $1,000.00 due beginning January 5, 2012 (i.e. $120,000 in future payments)
At 19.25% effective discount rate, the cash lump sum would be around $42,100
At 8.19% effective discount rate, the cash lump sum would be around $74,000
Important tips
- Shop around. Those who fail to shop are likely to get ALOT less than they should. They may also need to sell considerably more payments than they should to raise the cash that they need.
- If you think you are getting a good deal by going to Peachtree Settlement Funding, think again. The company operates in a world of high discount rates. If you consider yourself a smart shopper then don't waste your time going to Peachtree. Peachtree is "pooptree" when it comes to effective discount rates! Stay out of the "splatter zone"!
- To stay out of the Peachtree "splatter zone" consider using the FREE structured settlement factoring discount rate calculator. If you aren't sure how to use it please contact this author, John Darer.
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