We’ve all see the television commercials…”get one lump sum now for your structured settlement.” The commercials boast “why wait” and “you deserve your money now.” Testimonials are given by individuals who needed these lump sums quickly to pay off credit card debt or other items such as student loans.
How wise are these buyouts? And are they similar to predatory lending? The actual advantage to selling a structured settlement was addressed in an informative article written and published by www.cockeyed.com on May 10, 2006 (last visited November 8, 2007). Using data provided by J.G. Wentworth, a well-known structured settlement buyer, www.cockeyed.com provided the following summary of the so-called benefits to individuals who used this service:
“Here is a summary of the five client profiles that included financial details:
- Kathy K. traded $560/mo for 122 mo (value over time $68,320) JGW paid $38,000
- Dena T. traded $1,096/mo for 30 mo (value over time $32,885) JGW paid $24,139
- Rachel V. traded $343/mo for 96 mo (value over time $32,972) JGW paid $16,000
- Deborah D. traded $1,500/mo for 120 mo (value over time $180,000) JGW paid $110,000
- Bill W. traded $1,700/mo for 84 mo (value over time $142,800) JGW paid $45,000
Kathy K’s story is similar to borrowing $38,000 and paying $560 a month until it is paid off. If she could get a loan at 12% APR, she could pay off a $38,000 loan in 116 months. At 8% she could pay it off in 93 months. Dena T. wanted $24,139 and had $1,096 times 30 months to pay it back. This is similar to a loan at 18% APR. Rachel V. needed $16,000, and had $343.46 to spend each month. Using 96 payments of $343.46, she could pay that off, even with an APR of 20%. Deborah D. had a ton of money to work with, 120 months of $1,500. If she had borrowed her $110,000 at 10% APR, she could have paid it off in less time (117 months). Bill W. didn’t do so great. If he had borrowed his $45,000 on a credit card, and paid it off with $1,700 payments, he could have paid it off with 40 payments, even at 22% APR. He could have saved money if he had found a $45,000 loan charging 25% APR, 30% APR, or even 40% APR.”
Source: http://www.cockeyed.com/citizen/structured/structured.shtml (last visited November 8, 2007).