- Selling annuity or structured settlement payments means trading future income for a discounted lump sum — and the discount is the entire business model of the buyer.
- Buyout pricing commonly implies discount rates of 9% to 18%+; the table below shows what each rate costs in dollars on a real stream.
- Structured settlement sales require court approval under state protection acts; a judge must find the sale in your best interest.
- Partial sales — selling some payments, keeping the rest — are almost always available and almost never led with.
- Free withdrawals, surrender, and loans are frequently cheaper than a buyout; exhaust them first.
If you are reading this, you probably need money and you hold future payments someone will buy. The companies advertising for that business spend three-figure sums per click to reach you — among the highest advertising prices on the internet — and every dollar of it is funded by the spread between what your payments are worth and what you will be paid. This page computes that spread, explains the court process, and walks the cheaper doors first.
What selling your payments means
A factoring company pays you a lump sum today in exchange for some or all of your future payments — from a structured settlement, a period-certain annuity, or lottery installments. The company then collects your payments as they come due.
Their profit is the discount rate: the interest rate implied by the gap between the stream's value and the lump sum. That rate is the entire deal, and it appears nowhere in the advertising. Everything else on this page exists to make it visible.
The discount-rate math, in dollars
Take a concrete stream: $1,000 a month for the next 10 years — 120 payments, $120,000 of total money. Valued honestly at a 5% rate (roughly what safe money earns), the stream is worth about $94,281 today. Here is what offers at typical factoring discount rates actually pay:
| Implied discount rate | Lump sum offered | Below fair value | Haircut |
|---|---|---|---|
| 9% | $78,942 | $15,340 | 16% |
| 12% | $69,701 | $24,581 | 26% |
| 15% | $61,983 | $32,299 | 34% |
| 18% | $55,498 | $38,783 | 41% |
Present values of $1,000/month × 120 months, monthly compounding — exact arithmetic from the present value formula. The 5% row is the fair-value anchor, not an offer you will receive. Compute your own offer's implied rate before signing anything; if the company will not tell you the rate, that is itself the answer.
Read the table the hard way: an offer implying 15% pays you about a third less than the stream's honest worth. That is not fraud — it is disclosed-in-the-fine-print pricing in a market with a captive customer. The defense is arithmetic, done before signing.
Court approval: what it does and does not protect
Structured settlement transfers require a judge's approval under state Structured Settlement Protection Acts. The court must find the transfer in your best interest, considering your finances and dependents; the buyer files the petition and discloses the terms.
This is real protection against the worst deals, and judges do reject transfers. It is not protection against a merely bad deal — courts approve high-discount transfers routinely when the seller's need is genuine. The hearing reviews your situation; it does not shop the offer. Getting competing quotes from multiple factoring companies is your job, and it moves the price more than anything the court does.
Ordinary annuity streams sold outside the structured-settlement framework get no court review at all. Same math, no judge.
Partial sales: the option they mention last
You can almost always sell some payments — three years of a ten-year stream, or half of each payment — rather than all of them. The company earns less, so it leads with the full buyout.
Size the sale to the actual need. If the roof costs $18,000, selling $60,000 of payments answers a question nobody asked. The smallest sale that solves the problem preserves the rest of the stream's value for you instead of transferring it.
Taxes, briefly but importantly
Structured settlement payments from personal physical injury claims are generally income-tax-free, and a properly executed sale typically preserves that character on what you receive. Ordinary annuity streams are different: the embedded gain is ordinary income, and a lump-sum sale accelerates it into one tax year — potentially at a higher bracket than the payments would have faced spread out. The taxation guide covers the mechanics; a tax professional should see the specific deal before you sign it.
The alternatives, priced in order
The free withdrawal allowance. If the payments come from a deferred annuity you have not annuitized, the contract likely permits around 10% of value annually with no charge. Cost: zero beyond tax.
Surrender, full or partial. A surrender charge of 6% stings until you compare it with a buyout's 25–35% haircut. Run both numbers; the surrender guide shows how, including the market value adjustment.
Borrowing. A secured loan at 8–10% against other assets is frequently cheaper than selling payments at an implied 15%. The comparison is the same present-value arithmetic pointed in the other direction.
A partial sale, competitively bid. If the buyout is genuinely the remaining door, sell the fewest payments to the highest of at least three competing offers, and make each company state its price against the same payment schedule so the implied rates are comparable.
Red flags, from the complaint files
Pressure to sign before a deadline that exists only in the salesman's calendar. Offers quoted as a lump sum with the discount rate omitted or waved off. "Advances" against your payments before court approval, which create obligations that shadow the hearing. Discouraging you from getting competing quotes or independent advice. Any of these appearing together with a genuinely urgent cash need — which is exactly when they appear — is the pattern our scams guide exists for.
The honest summary: selling payments is a legitimate transaction with a brutal default price, sold hardest to people least positioned to negotiate. The arithmetic on this page is the negotiation. Do it first.
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