What Is a Structured Settlement Loan?

Structured Settlements and Structured Settlement Loans

In some personal injury cases, you may end up with a structured settlement, receiving small amounts of money on a regular, ongoing basis rather than one lump sum.

What happens if you have a structured settlement but find yourself faced with unexpected expenses?

If you were hoping to take out a loan against these structured settlement payments, that is not possible. However, you still have options if you need cash now.

There are many reasons you might need more cash than your structured settlement provides, although people often seek this form of financing to deal with mounting medical bills.

Whatever the reason, if your financial need outstrips your structured settlement payments, you can likely find a company to help you.

Structured Settlement Loans Do Not Exist

If you search online for financing related to structured settlements, you will find some companies advertising structured settlement loans. These companies are deliberately using the word “loan” inaccurately because that is what many consumers are searching for.

The companies offering this service are usually factoring companies. They buy your future structured settlement payments at a reduced rate in return for cash. You choose whether to sell all or part of your expected payments.

This form of financing is not a loan, though. You don’t borrow money. When applying, your credit score is not considered. You have no interest charges and no schedule of repayments. Even if advertised as a structured settlement loan, this is a sale. You sell all or a portion of your future structured settlement payments for a lump sum. You then lose the regular income stream of the structured settlement.

A lawsuit cash advance or pre-settlement funding is another arrangement often inaccurately represented as a loan, but is in reality a cash advance. This is not a structured settlement loan either.

If you are awarded a structured settlement, you can choose between sticking to your payment schedule and selling part or all of those payments to a reputable factoring company for an upfront lump sum.

Why Can You Not Use a Structured Settlement as Collateral?

Assets used to secure a loan are classified as collateral. Whenever a bank accepts something valuable as collateral on a loan, it needs to feel confident it can seize the asset if loan payments are not made. Structured settlement payments enjoy tax-free status, meaning the transfer of the settlement is restricted and the bank is unable to seize it without prior court approval. Such approval is unlikely to be granted.

Structured settlements are intended to help those harmed or rendered unable to properly care for themselves. Settlements can eliminate the need for the injured party to draw public benefits. These settlements are not considered income, but rather compensation for injury.

Most banks will refuse to accept a structured settlement as collateral for a loan.

How About Using Your Structured Settlement to Prove Income?

While you cannot easily use a structured settlement as collateral for a loan, in many cases, a bank will accept it as proof you can repay a loan.

Whether you’re looking for a mortgage to purchase a new home or a second mortgage to bankroll home improvements, banks and mortgage providers will look at your ability to repay any loan you request.

If you contact the administrator of the company issuing your structured settlement payments, they can provide you with written proof of your settlement. Alternatively, you could show bank deposits of past structured settlement payments. Banks and mortgage providers may take these payments into consideration when evaluating your application.