by John Darer CLU ChFC MSSC RSP CLTC
Is selling your structured settlement payments the same as a loan?
Although technically different, the end result is similar
- With a loan, you receive money now from a bank or other mortgage lender in exchange for your promise to make pay it back over time. Banks must have licenses and meet minimum capital requirements to operate and are regulated on the State and Federal level. many are also publicly traded companies.
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When you sell structured settlement payment rights, you transfer ownership of future payments to company or individual investor in exchange for a lump sum. The majority of companies soliciting structured settlement annuitants to sell have no licenses and are not registered to do business in each state they do business in
- Sellers should, in each and every case AND from each and every company they get quotes from, demand a number for the effective discount rate, even if it is not required under the state's structured settlement protection act. This is the numerical equivalent of what you would be paying if it were an actual loan. If you sell in Florida, there is a mandatory disclosure of the effective discount rate. in mandatory disclosures on Florida structured settlement transfers you will see something to like this "this means you will effectively be paying us interest at the rate of ____% per year". The applicable federal rate means diddly, the effective discount rate is where the rubber meets the road. So if one of the cash now for structured settlement vultures has convinced you to sell your structured settlement to buy a home by selling your income to them at an 16% effective discount rate, you can easily see that's not a good deal (before you make a bad deal), when compared to mortgage rates.