If you have been considering getting an advance on your inheritance, you may have heard people warn you against it. Recent news articles have discussed the inheritance advance industry and suggested that, rather than advances, they are actually loans. They are not. There is a significant difference in an inheritance advance and an inheritance loan, which we will explain later. However, some of the concerns that the people writing the articles point out are valid, and we are going to discuss them as well.
One of the critiques of inheritance advances is that, if they were loans, many of them would have extremely high effective interest rates. That is true, but misleading. Loans involve lending money for a certain period of time, with a set payment amount, and a set interest rate. That is how you can calculate the APR of a loan.
What Are Inheritance Advances?
Inheritance advances involve you selling part of your interest in an estate at a discount to an inheritance advance service. You and the buyer both get a benefit. You get access to some portion of your money earlier, and the buyer gets the benefit of a larger payment amount when the estate settles. The buyer also takes the risk of the estate becoming insolvent, as you are not responsible if the buyer does not recoup the amount advanced when an estate settles. The fee you pay in an advance is not interest, but a set fee, and it does not depend on how long it takes to settle the estate.
That said, it is important to realize that inheritance advances are not a good financial idea for everyone. While the buyer takes the risk of an estate becoming insolvent, in the vast majority of cases the buyer makes a significant profit on the inheritance advance. We want to be completely transparent that we are a for-profit business, and we make a profit on our inheritance advances.
Inheritance advances are not a great idea for people who do not need the money before the estate can settle. If you are financially comfortable, or even only moderately struggling, and you can wait until the estate is probated, an inheritance advance is probably not going to be your best financial move. There are exceptions to this general rule, of course. For example, if you want to be able to buy out other heirs or need liquid assets to settle the estate, an inheritance advance can help. However, you probably should not consider them for wants.
When Can Inheritance Advances Be Beneficial?
On the other hand, if you have financial needs that cannot wait out the uncertainty of the estate probate process, an inheritance advance can be a financial lifesaver. It can supply you with the funds you need right now. Used responsibly, they can be a great financial tool. However, you should always look at the short-term and long-term impact of the decision before making any substantial financial decision. To get the details you need so that you can make an informed decision, you can contact us for more information.