Probate loans are a loan made against inheritance while the heir is waiting to receive a probate distribution. Many heirs and beneficiaries of an estate might need money before probate is finished so they look for a probate loan. Probate lenders evaluate the size of the estate and then charge a high-interest rate which is backed by a credit check and underwritten by assets.
In this article we’ll detail the important factors in receiving a probate loan starting with how they work and concluding with the different probate loan rates that are common.
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How probate Loans Work
A probate loan works similarly to a mortgage except it is at a higher rate which is similar to the highest credit card rates. Once the inheritance lending company evaluates the creditworthiness of the borrower, it will then present an interest amount. The borrower will need to pay the interest rate until the full loan is paid off which usually happens when the probate concludes and distribution of probate assets occurs so the borrower can pay back the loan.
Should You Get A Probate Loan?
If you are considering a probate loan, make sure that you understand everything that is involved and how much it could end up costing at the end of the day. Here are some tips to evaluate probate loans.
- Consult an estate attorney and a financial advisor. These professionals can help you understand the probate loan process and the legal and financial aspects of your decision.
- Understand the full value of your inheritance. An estate attorney will also be able to help you understand what you are eligible to receive from the estate and how long it might take for you to receive it.
- Notify the executor or administrator of the estate. Let that person know what you are planning to do so he or she can (1) provide any necessary documentation and (2) be prepared for the probate lender to become involved in the probate process.
- Get offers from multiple lenders. Find the best terms for the loan by comparing offers from several lenders. Before you decide, consider getting advice from your financial advisor or estate attorney about which offer to take.
- Consider alternatives. If you are considering probate lending because of financial need, could you get a loan from a family member? If not, a probate advance is a great option since the terms are set up front and you know exactly the money you are giving up without having to take monthly payments. A probate advance is an assignment of a portion of the expected inheritance.
Risk of High Interest Rates From Probate Loans
Probate loans may cost a lot, especially in relation to what you gain. For example, if you get a probate loan and the probate turns out to be relatively quick, you may lose a significant portion of your inheritance cash If you want to take out a probate loan, and in most cases they are very difficult to obtain since they need to be backed by an asset, have an employment check and also a credit check. First of all, these types of loans cost a lot more than traditional ones due to high-interest rates and risk factors involved in loaning money based on an inheritance that is not guaranteed. For example, if your estate goes through quick succession with little opposition from any interested parties or disputes among beneficiaries then this could be considered as less time for lending purposes which means they will have paid back most (if not) all of the original amount borrowed before receiving their portion from the estate. This can cause them substantial losses even though they were only borrowing small amounts at first glance, effective interest rate ranges anywhere between 5% – 50%. Finally one must also consider how much they are needing to get them through the probate and how much they actually need to borrow.
Probate Loan Examples
Estimating the probate loan rate is pretty easy based on simple examples. For instance, you received a $15,000 probate loan on a $25,000 inheritance — you could pay a compounding interest rate for the entire period of the probate loan which could be up to 3 years.
Probate Advance Example Rates
A probate advance is different. With the same example, if you need $15,000 and are inheriting $25,000 you might assign $20,000 in exchange for receiving $15,000 immediately. Once probate concludes $20,000 would go directly to the probate advance company and then you would receive the remaining $5,000. The probate advance cost you $5,000 in exchange for immediately getting money fast. This would be agreed upon ahead of time and the process would be fully transparent without any ongoing interest fees.
When Are Probate Loans Due?
A probate loan is due when probate concludes. Interest will be required until the full loan amount is paid off which usually happens when probate is over. The duration of the loan depends on how long the probate case takes.
Probate Advances Are More Transparent than probate Loans.
Probate advances are transparent and easy to arrange. Generally, they happen within 24 hours and you don’t have to worry about paying a high rate of return on a monthly basis. If you are looking for a probate advance company, Inheritance Advanced has an A+ BBB rating and has provided probate advances to over 1,600 heirs that needed money or wanted to buyout other heirs. Contact us today for a free probate advance consultation.