When you need immediate cash, it might make sense to consider selling future payments. You’ll get a lump sum of cash in exchange for giving up months or years’ worth of payments. If you have medical costs, student loan repayments, or other expenses on the horizon, having the upfront cash may be worth sacrificing the promise of money later.

Just be sure you understand how much cash you’ll actually receive. You don’t want to be blindsided by an unfavorable discount rate or surprise financial needs down the road. Stay with us as we outline the key financial factors to consider before selling future payments.

Be Clear About the Discount Rate

If you decide to sell future payments, be aware that you won’t get their full value as a lump sum payment. The discount rate, which considers the current value of your future payments, will impact what you receive. When you’re running a new business or planning for retirement, the discount rate can affect your future financial stability. 

You may get different discount rate offers from different buyers, so it’s best to compare options. Ideally, you’ll want a lower discount rate so you walk away wth more money. In other words, if you are expecting payments that amount to $50,000 in the next few years, a sale with a lower discount rate could entitle you to $40,000 rather than $35,000.

Understand What You Are Sacrificing

Yes, a lump sum payment can help with medical bills, moving costs, or home maintenance expenses. But you’ll be giving up a source of money to pad your income for years to come. You’ll need to be mindful of your budget going forward when you sell future payments. 

Know that you can make a partial sale, too. In other words, you don’t have to sell all of your future payments. Take a cautious approach so you’re not giving up everything.

Know the Costs

Don’t agree to an offer until you are clear on all the costs. Get a breakdown of all fees that can cut into what you receive. Legal, notary, and closing costs will all come into play. 

Look over lump sum payment options, including full and partial sales. You could sell payments expected over the next two years, for instance, and keep payments scheduled after that. Or you could even request a specific dollar amount from a buyer.

Running a business, paying off loans, and renovating a home are all expensive pursuits. You can secure the money you need by selling future payments, but you need to understand associated costs, such as taxes and administrative fees, first. 

Access the Cash You Need

When you’re trying to decide whether to sell future payments, do your homework first. Be clear on fees and discount rates that will cut into your lump sum payment. Get several offers from different buyers so you can compare options and know how taking the cash now will affect your future income and budgeting plans. 

Taking time to understand the financial implications of a sale can help you make the right decision for your long term financial needs.