Based on a recent article about the secondary market for prepaid structured settlements, you already know that transferring your structured settlements due to a prior settlement is perfectly legal. But understanding why you can sell your future payments to a third party does not mean you necessarily need to. Actually, there is a very good reason why some portion of your future settlement was designated for you in the first instance. Here’s why.
A discount factor essentially means “what you get today is less than what you could get tomorrow”. This is exactly what an acquiring company would like to do with your structured settlements; they would like to receive the full amount as quickly as possible. So when the acquiring company purchases your future payments from you, they are basically giving you a lump sum payment today and then taking their profit on the remaining amount over the course of the remaining life of the annuity. As you may have guessed, this makes it easy for them to offer you a discount. But will purchase companies actually give you a discount?
The answer to this question is going to vary from one factoring company to another. There are some that base their fees on the present value of the transaction while others base their fee on a percentage of your future settlement. So when you talk to any factoring company, be sure to ask them directly if they purchase your future settlement for a discount. While they may say no, the chances are slim that they will actually give you a discount. It is best that you do your homework before approaching a purchasing company so you don’t walk into a financial disaster later down the road.
Why should you sell structured settlement payments or buyout them if you are not getting a discount? Basically, it comes down to two factors. First, the fact that you are past due and have not been making regular monthly payments; you will most likely receive less money than you are owed. Second, once you have sold your periodic payments or annuities and the purchasing company buys them from you, they are essentially making money off of your current account. In other words, they are making a profit off of the interest you still owe them even though you no longer make payments. These two factors alone will give any factoring company an advantage over you, which will cause you to pay more money in the end.
If you are wondering how you go about selling structured settlements for a price to buyout them, the answer is simple. Many factoring companies have a free quote feature on their website where you can get a free rate quote on buying your payments from them. You simply fill out the forms on their website and give them your information. They then send you a free quote so that you know what kind of payment they will charge on the lump sum they are going to buyout for you. The more free quotes you get the better chance you have of finding the lowest price they will give you on the transaction.
It is important to know that when you sell these payments to a factoring company that you will not get the full face value of them. What you are going to get instead interests based on the amount of your annuity. However, what you are really paying for is time. If you are willing to wait out the lump sum before selling your annuity to the purchasing company, you could potentially save yourself thousands of dollars.