The Pros and Cons of Structured Settlement Loans

Personal Finance
a piggy bank and a gavel symbolizing a structured settlement loan

Owners of structured settlements can use them as collateral for loans and generate cash when needed.

Loans guaranteed by a structured settlement are a good source of cash. The structured settlement loan differs from a sale of a structured settlement because you must repay the loan. There is some confusion about the idea of a loan versus a sale. Some companies who purchase settlements refer to their transactions as loan transactions when they might more accurately be called purchases. Unfortunately, the blurred line might make some structured owners believe they are making a loan when in fact it is a sale.

The government does not tax monies from a structured personal injury settlement as income. They do not tax loan proceeds as income unless or until forgiven, and converted from loan to gift or other form of income. Thus, the structured loan funds have the same impact on the borrower as the original structured settlement: neither are taxable as income.


There are advantages and disadvantages to structured settlement loans. From the borrower’s point of view, the advantage of a loan is the receipt of a large lump sum instead of smaller periodic payments from the structured settlement. The advantages of a lump sum depend on individual circumstances; however, many borrowers seek to make a purchase that requires a lump sum such as real estate. The other area of advantage for the borrower is the amount. Structured settlement loans can return a higher percentage than sales, and in the case of a loan, the owner retains title to the settlement, and it can resume after repayment of the loan amount.


The disadvantages of a loan for the borrower are that it takes more time than a sale and that you must repay the loan amount plus interest. The income from the structured settlement will go to loan repayments. The borrower expects to repay a loan; however, the borrower must adjust to the loss of income. If you do not plan carefully, the advantages of the loan can be lost if there is not enough income. The second and more problematic element is the time involved. Many lenders do extensive research on the asset to be sure that it is free of encumbrance or anything that could diminish its value. This can easily run past 90 days and can involve fees chargeable to the loan.

Lenders of Structured Settlement Loans

From the lender’s point of view, the advantages of a structured settlement loan are its guarantee of repayment, and the ease of the transaction. Should the lender wish to lay-off any part of the loan to other investors, that transaction would present a solid record concerning the asset and an easy path to doing business. The thorough examination of the asset would help a later purchase or further loan transactions with the borrower. For the borrower, this long lead-time before getting the lump-sum loan can discourage borrowing and encourage a sale of the structured settlement. This is an effective way of getting cash more quickly compared to a structured settlement loan.

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