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Cashing Out My Structured Settlement – How Much Will I Get?

In their ads, structured settlement factoring companies promise cash fast.  They may also promise to beat all other offers.  But, realistically, how much can you expect to get when cash out a structured settlement?

Well, if you had visions of getting a huge lump sum for your structured settlement, you should revise your expectations.  You will likely be quoted a lump sum that is far less than the total amount of the payments you were scheduled to receive.  The reason for this is the discount rate.

Structured settlement buyers cash out settlements for less than the full amount in order to compensate for what the time value of money costs them.  By giving you cash, they don’t have the cash available to invest elsewhere.  If the buyer had to borrow the cash used to buy out your settlement, he is paying interest on that loan.  Because he has to wait for the scheduled payments to arrive, he also has opportunity costs – the money is unavailable to spend on some other, potentially more lucrative opportunity.

The discount rate is the buyer’s valuation of these costs.  And, in addition to compensating him for lost opportunities, the discount rate is designed to compensate him for his operating costs, such as office expenses, employees, and legal expenses. 

There is no “typical” discount rate that you can expect a structured settlement buyer to charge.  Often, the rate is in the double digits.  There also is no standard as to a “fair” discount rate – it is essentially what you are willing to tolerate in order to get a lump sum of cash quick.  Your structured settlement factoring transaction will have to be approved by a court, however, and it is possible that a judge may refuse to grant permission for the sale to continue if he believes the discount rate is too high, or that the structured settlement sale is not in your best interest.  

But don’t count on a judge as your only measurement of the fairness of the sale.  You should still get legal and financial advice (your state probably requires it) and get an objective opinion about whether the transaction is right for you.  In addition to looking over the sale, he may be able to direct you to other options for getting the cash you need that you may not have considered.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

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