If you receive money from a structured settlement, you get a series of fixed payments over time rather than one lump sum. At some point you may face a large expense and wonder whether you can use those future payments as collateral for a loan. The short answer is that a true loan against a structured settlement is rare, and it pays to understand why.
Why lenders are cautious
Most settlement payments come from an annuity, and the terms are written so the payments can’t be assigned or pledged easily. That makes them awkward to use as collateral, so traditional banks generally won’t lend against them. Anyone advertising a “settlement loan” is often describing something different from a standard secured loan.
What is usually available instead is a sale, often called a factoring transaction. You sell some or all of your future payments to a company in exchange for cash now. This is not a loan, you don’t repay it, but you give up payments you would otherwise have received, often at a steep discount.
Things to weigh before deciding
- Selling future payments almost always means receiving far less than their total face value.
- Court approval is typically required, and a judge must agree the deal is in your interest.
- The discount rate matters enormously, so compare quotes from more than one buyer.
- Ask whether selling only part of your payments could cover your need.
Before signing anything, talk to an independent adviser or attorney who is not connected to the buyer. Also consider simpler alternatives first, such as a personal loan, a credit union, or negotiating a payment plan with whoever you owe.
The takeaway: you generally can’t borrow against a structured settlement, but you may be able to sell future payments. Treat that as a last resort, get independent advice, and shop around.
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