What Are the Pros and Cons of Lump Sum Versus Payments?

Lump sum versus payments are a big debate within the financial community. When the lump sum is received, all creditors receive the money, with the exception of a small percentage that goes to the attorney who represented the person receiving the money. This percentage is known as a draw down.

Payments are usually made over a long period of time and creditors usually have the option of going to court and forcing the recipient to pay out over an extended period of time. With lump-sum transactions, creditors do not have to worry about a drawn-down or a lawsuit.

In contrast, lump sum payments give creditors more options with regard to the amount they can collect. There are certain limits to how much can be taken by a creditor with payments. One of the most common limits is the lifetime limit of 50% of the total amount owed on any particular loan. This limit is used by creditors when determining whether a client is paying their bills on time or not.

Another limitation is the income-based limit on the amounts that can be collected. This limit is based on the amount of income that a person has, which determines the amount of money that they can receive over time. Income-based limits are generally used in combination with the lifetime limit on the amount of money that can be collected.

If the case is not settled, then a debtor may decide to sell the property that the lump sum represents. This is referred to as foreclosure. During a foreclosure process, creditors will try to get any money that was due on the property. In order to keep creditors from obtaining any monies from the property, a court order is sometimes issued.

With lump-sum transfers, there is a guaranteed payment schedule for the debts that were issued. This gives borrowers more control over the way in which the money is being distributed. With payments, creditors are left with few options.

Settlement may also happen at a later time if the client is no longer able to pay the full amount owed on the loan. The payments are given to the client on a date in the future that can be determined by the client.

Because payments are given at regular intervals, some clients find that this can help them save money. As the payments are distributed, some people will have extra money to use towards paying off debts, while others will save the money that they receive by using it to pay off the debt.

Although lump sum transfers may seem like the easiest option for creditors, they should not be overlooked completely when considering the pros and cons. While the option may be convenient to the recipient of the funds, it also provides the creditor with more control over how the money is being used. Some clients choose to use payments to pay off debt instead of having it go straight to the creditors.