4 Reasons to Get a Structured Settlement Loan

A structured settlement loan allows you to receive a cash advance on legal debts that have yet to come your way. This can occur if you recovered money in a lawsuit or won the lottery. For example, you may have received a settlement in a divorce proceeding that is distributed over 10 or more years. If you cannot wait to receive the money, taking a loan against it allows you to put the cash to work today. These loans are not without risk or expense, though, so they should only be considered under certain scenarios. 

#1 You have a Pressing Financial Emergency

If you are facing an emergency, taking a loan to meet day-to-day expenses may be necessary. Consider the definition of emergency, though, and apply it in the narrowest sense. For example, you may be approaching foreclosure on your home because you lost your job; this is an emergency. On the other hand, you may be delinquent on your mortgage because you overspent last month, which is not an emergency. Only take on the new debt if there is no other way to resolve the situation you are in.

#2 You are Approaching End of Life

If you are expecting a large payout to occur through annuities over the next years of your life but are uncertain of how needed they will be at that point, collecting the payments today makes more sense. Retired persons who will not have the need for the funds far into the future often make this decision. If you do happen to pass away while the settlement loan is still active, the contract can be written so it is closed out of payments from your estate, typically the annuity payments you would have received in the future.

#3 You are Building Equity

You may want to use a loan against future settlements to purchase a home or start a business. These are examples of equity-building investments. The gains you earn as the equity grows, ideally, will offset the interest you owe on the loan. This means that taking the loan today makes financial sense in addition to suiting your personal needs. Of course, there is a chance your home could fail to appreciate in value or your business plan could falter, but this is a chance many individuals are willing to take in order to pursue their goals of home or business ownership.

#4 You Want to Invest

If you are smart with your money, you can invest the funds in a way that allows you to out-earn the interest on a settlement loan. For example, if your interest rate is 6.5 percent on an advance of $20,000 that matures in 5 years, you would only need to beat that 6.5 percent interest rate in order to come out on top in this scenario. Again, you could fail to beat the interest rate, and you would lose money by taking the loan. For the most part, though, financial advisers recommend those with a long structured settlement find ways to put the money to work in investments today.

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