Structured Settlement Loans

You have a structured settlement, but you need more money to pay an unexpected expense. Can you get a loan against your settlement payments? Unfortunately, you can’t. But you do have options.

Written By : Elaine Silvestrini
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There are ads around the internet for something called “structured settlement loans.” The idea might be appealing if you have a structured settlement and have a financial need that exceeds the payments you’re getting.

Maybe you need to renovate your house. Or you need a new car. Or medical bills are threatening to overwhelm you. There could be any number of reasons your settlement payments aren’t enough right now.

So what can you do? Can you get a loan against your future structured settlement payments? In short, the answer is: No.

No Such Thing as a Structured Settlement Loan

Some businesses advertise structured settlement loans on the internet. But a loan is not really what they’re offering. They’re using the phrase inaccurately because that’s what some people are looking for.

Usually, these are factoring companies that actually buy your future payments. This is an option for people who own structured settlements. You can sell all or a portion of your expected payments at a reduced rate in exchange for cash.

But this is not a loan. You are not borrowing money. You don’t have to have a high credit score. There is no schedule of repayments and no interest charge. It’s a sale. You are selling all or part of your structured settlement payments and will stop receiving the regular income stream you may have been relying on.

Additionally, a lawsuit advance, or pre-settlement funding — an arrangement in which a plaintiff receives money before their case is settled — is also not considered a structured settlement loan.

Put simply, a structured settlement is not a loan or a bank account, and the only way to receive money from your settlement is to stick to your payment schedule or sell part or all of your payments to a reputable company for a lump sum of cash. Any company that tells you it can give you a structured settlement loan is misrepresenting the transaction and its intentions, and you do not want to do business with them.

Why Can’t You Use Your Structured Settlement as Collateral?

Collateral is an asset used to secure a loan. When a bank accepts something of value as collateral on a loan, it must feel confident that it can seize that asset if the loan payments aren’t made. The tax-free status of structured settlement payments restricts the transfer of the settlement, and therefore, the bank can’t seize it without court approval — which it is not likely to get.

Lawmakers see structured settlements as a way to help people who have been harmed or are otherwise unable to care for themselves. In this capacity, the settlement eliminates the injured party’s need for public benefits. Structured settlements are considered compensation for injury, rather than income.

Because this is the intended use of a structured settlement, most banks will not accept a structured settlement as collateral for a loan.

Pro Tip
The law that makes structured settlements payments tax-free also prevents you from using the payments as collateral on a loan.

In addition, other legal hurdles bar the use of structured settlements as collateral on a loan.

What About Using the Structured Settlement as Proof of Income?

So if you can’t use the structured settlement as collateral, won’t the bank at least accept it as proof that you can repay your loan? In many cases, the answer is yes.

You might want to get a mortgage to buy a new home, for example, or a second mortgage to finance home improvements. One thing that banks and other mortgage providers look at in reviewing whether to approve the loan is the applicant’s ability to make loan payments.

You can get proof of your structured settlement income from the administrator at the company that is making the payments to you. You can also show bank deposits of past structured settlement payments. The bank or mortgage company may consider these when reviewing whether to give you a mortgage.

6 Cited Research Articles

  1. Grayson, L. (n.d.). How to Obtain a Home Mortgage With a Structured Settlement as a Proof of Income. Retrieved from https://budgeting.thenest.com/obtain-home-mortgage-structured-settlement-proof-income-22165.html
  2. Fisher, D. (2018, March 19). Study on consumer lawsuit loans finds high rates, confusing terms. Retrieved from  https://legalnewsline.com/stories/511365351-study-on-consumer-lawsuit-loans-finds-high-rates-confusing-terms
  3. Leary, E. (2017, December 15). Unregulated lawsuit loans are a costly way to raise holiday cash. Retrieved from  https://www.cnbc.com/2017/12/14/unregulated-lawsuit-loans-are-a-costly-way-to-raise-holiday-cash.html
  4. National Association of Settlement Purchasers. (n.d.). FAQs About Secondary Market Transfers. Retrieved from https://www.nasp-usa.com/secondary_market_faq.php
  5. National Structured Settlements Trade Association. (n.d.). Injured People. Retrieved from https://nssta.com/who-we-help/claimants
  6. Avraham, R. and Sebok, A.J. (2018, April 10). An Empirical Investigation of Third Party Consumer Litigation Funding. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3137247
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