If you are set to receive an inheritance and are anxious to receive the money as soon as possible due to some pressing financial need, you may have been disappointed to learn that the typical probate process can take quite a long time—an average of 17 months in the US. If you are in this category, you have probably started looking for ways to meet your financial obligation knowing that the inheritance money is coming. Your first thought may be to simply get a loan from a bank. Another option is to get an advance on your inheritance, which you may not have heard of yet but offers some compelling advantages over a bank loan.
There are two types of personal loans you can get from a bank, or other financial services company: a secured personal loan, or an unsecured personal loan. With a secured personal loan, you have to offer an asset that’s worth something as collateral in case you can’t pay back the loan. If you default, the lender gets that asset. An unsecured loan doesn’t require collateral but typically does not offer as large a loan and requires a very high credit score. If you are unable to repay the loan, the lender can’t garnish your wages but your credit score will suffer and the lender can file a lawsuit against you to collect the outstanding debt, interest, and fees.
Personal loans are issued as a lump sum that is deposited into your bank account. You’ll be required to pay back the loan over a fixed period at a fixed interest rate (the rate depends on your personal credit-worthiness). The payback period can be as short as a year to as long as ten years and varies by lender. The rate you are charged will be higher for longer payback periods and there are often added fees like a “loan origination fee” that you will have to pay. Depending on your finances, how much money you need, and how quickly, a personal loan could be a good way to go.
If your credit is not stellar, however, and you need a large portion of your inheritance quickly, you should consider an inheritance advance. The biggest difference between an inheritance advance and a bank loan is simply that an advance is NOT a loan. There is no interest and there is nothing for you to pay back. With an inheritance advance, a portion of the estate is assigned to the company making the advance in exchange for that advance. In other words, you give the company part of your inheritance, they send you the funds and then, when the probate process has been completed, the estate pays the company back.
The amount of your inheritance assigned to the company is agreed to ahead of time, as is the fee the company will collect for the service. These fees are usually a percentage of the assigned amount and can rise based on the size of the advance requested. If agreed to, you receive your funds within a couple of days, sometimes even hours. The estate pays the company the assigned amount directly at the end of probate. If excess money remains, the estate distributes that money directly to you. Some inheritance advance companies also offer rebates if the estate repays your advance sooner than expected (i.e.., probate closes early).
For beneficiaries who need money quickly, an inheritance advance is a faster and easier route to receiving funds than a personal loan and may also cost you less. The key is to shop around and compare the real cost in interest and fees overtime to make the right decision.