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June 07, 2007

Structured Settlement Factoring Transactions | Discount Rate v "Effective" Discount Rate

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

Dallas lawyer Matt Bracy did a nice job of explaining the structured settlement factoring process (which is entirely different from  how structured settlements work) in a post on the Settlement Capital blog. Kudos again to Matt who is one of the few factoring company representatives that stands up and is not afraid to state what is that they actually do.

The one essential point that I think Matt didn't adequately cover is the discount rate. There is a big difference between the discount rate and the "effective discount rate".

In a structured settlement factoring transaction, the effective discount rate is the rate a seller of structured settlement payment rights is effectively "paying" to the buyer in exchange for "cash now" AFTER taking into account all charges. In the context of a structured settlement factoring transaction, consumers need to beware of looking simply at the quoted discount rate, which is often quoted before charges. If you find yourself considering selling your payment rights, use the effective discount rate to evaluate the wisdom of selling your payment rights. You can use the effective discount rate to compare to other sources of capital.

http://structuredsettlements.typepad.com/structured_settlements_4r/files/20070509161857_001.001.pdf

The above link is from from an earlier post reporting a March 2007 attempt by Massachusetts Academy of Trial Attorneys "Affinity Partner",  Peachtree Settlement Funding to get away with a 41.73% effective discount rate

Posted at 07:36 PM in Bridgeport Structured Settlements, Bronx New York Structured Settlements, Brooklyn New York Structured Settlements, Peachtree Settlement Funding, Structured Settlement Factoring, Structured Settlement Factoring News, Structured Settlement Payment Rights, Structured Settlement Transfers, Structured Settlement Watchdog®, Texas Structured Settlements |

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Guide to Structured Settlements 2025

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    In 2025, you can structure your settlement payments in various ways. A structured settlement allows for multiple payment types within one agreement. You can tailor and merge different structured settlement payments to suit your individual needs, either alone or alongside other financial instruments. If desired, diversify your structured settlement by utilizing multiple annuity issuers, treasury-funded structured settlements, index-linked structured settlement payments, and market-based structured options.
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  • What Are Structured Settlement Annuities?
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  • History of Structured Settlements
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  • What is a Qualified Settlement Fund?
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  • Firmwide Qualified Settlement Funds Debunked
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