What is interest drag?
Interest drag is the process of prolonging a structured settlement factoring transaction to earn interest off the delayed time before the transaction is funded.
Is every prolonged deal a case of interest drag?
A normal structured settlement factoring transaction should be completed in 6-8 weeks depending on the state the annuitant resides in.
How can I tell how much money I am losing to interest drag?
Lets use an example. Greg P. receives $2000 on the 28th of every month and would like to sell 100 payments to fund his child's education. Lets use the present value calculator to calculate how much Greg will lose per day if the transaction is prolonged. For this transaction a respectable discount rate is 8.7%. By entering the information listed above we get a present value of $143,986.43. By changing the date of the next payment by 1 day there is a difference of $32.91. Therefor Greg will lose $32.91 per day of present value. With this added up over several months, Greg could lose up to $2,000- $3,000.
If you have any questions about interest drag, please feel free to contact us.