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What is a Structured Settlement Loan?

Malcolm Tatum
Updated May 16, 2024
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A structured settlement loan is a type of loan that is extended using a structured settlement as collateral or security for the loan amount. The idea behind this type of lending arrangement is that the recipient of the settlement will receive a lump sum on the front end that can easily be repaid out of the settlement payments as they are presented over time. This approach allows people who need the lump sum up front to take care of medical bills or other debt obligations immediately to do so, while still ensuring that the loan will be repaid according to terms.

With many structured settlements, courts will allow the payment of the settlement to be structured into a series of payments, rather than requiring the obligation to be paid in one lump sum. It is not unusual for those settlement payments to be provided on a semi-annual or even annual basis. This can be problematic for people who need the money from the settlement now in order to manage debts that are currently pending.

By obtaining the structured settlement loan, settlement recipients do not have to wait for annuity payments to arrive in order to pay off pressing debts. The proceeds from the loan make it possible to retire those debts and begin to make a series of installment payments to pay off the loan, plus the interest applied to the loan principal. In some cases, the installment payments may be structured to coincide with the schedule for the annual or semi-annual settlement payments, although monthly installments are often required.

Going with a structured settlement loan is often a practical solution, especially if the settlement is the result of a protracted legal battle that has left the recipient with a great deal of debt to settle. The loan provides the ability to resolve all those different debts, leaving behind the one loan to manage. From this perspective, the structured settlement loan can be seen as a means of providing a great deal of peace of mind, as well as simplifying the management of personal finances.

Lenders who provide structured settlement loan options to clients will often base the amount of the loan on a percentage of the actual settlement. Typically, that percentage will be somewhere between 70% and 90%. This strategy helps to ensure that even if the debtor is unable to keep up payments at some point during the life of the loan, the annuity payments can still be claimed and used to settle the loan in full. As a result, the lender assumes less risk for approving the loan, and is more likely to offer a competitive rate of interest as part of the structured settlement loan terms and conditions.

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Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By cweaver09 — On Oct 17, 2013

Now when it comes to a structured settlement loan, are you subjected to the same type of interest rates as say, a traditional loan?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
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