If you are under financial duress while waiting for a personal injury settlement, you may have wondered how you can access settlement money early.
Before you start exploring your various funding options, you should spend some time carefully analyzing your financial needs and then only borrowing what you need. This will help ensure that the money borrowed doesn’t impact your financial compensation.
How Can You Access Your Settlement Funds Early?
The easiest route to get your settlement money early goes by many names: lawsuit loans, lawsuit cash advances, pre-settlement funding, and litigation financing, among many others. A legal funding company extends you a cash advance against your anticipated settlement, and in return you repay the principal plus interest and an origination fee.
Why Do Plaintiffs Need to Access Settlement Funds Early?
The American Bar Association (ABA) reports that personal injury lawsuits typically take from 3 months to 24 months to resolve.
In the case of a car accident, for instance, you are likely to sustain injuries that might require treatment, and possibly even surgery. At the same time, you are likely to lose wages as you take time off work for therapy and rehabilitation.
With mounting bills and medical expenses and the full expectation of receiving a settlement for your losses, damages, injuries, and emotional pain and suffering, it is understandable to explore your options for leveraging that settlement now.
If you are under acute financial stress, you could be easily pressurized by the insurance claims adjuster, possibly even taking a lowball initial settlement offer rather than pursuing the compensation you deserve.
Pre-settlement funding, also known as lawsuit loans, is one of the most common financial products plaintiffs use when looking to get their settlement money earlier. What are lawsuit loans, then?
What Is Pre-Settlement Funding?
A lawsuit loan is not actually a loan, but rather a non-recourse cash advance. This means it is risk-free for the consumer.
A legal funding company will advance you a portion of your expected settlement – from 10% to 20% of the expected value. If you win your case, you repay the principal in addition to an origination fee and interest. Your attorney pays the funding company from your final settlement.
If your case fails to settle, you are not obliged to repay the cash advance.
A lawsuit loan is not the right solution for everyone, and it’s not the only solution either if you want your settlement money early. Today’s guide will help you determine whether pre-settlement funding makes sense for you.
How Pre-Settlement Funding Can Help
If you file a personal injury claim for an auto accident, product liability claim, or medical malpractice claim, litigation can take months, sometimes even years if your case goes to trial.
With costs rising and income potentially affected, many people in these situations find a lawsuit loan is a more effective resolution to short-term cash flow issues than taking out a traditional bank loan or paying out-of-pocket from savings. With no credit check and no need to prove your income or employment status, all that counts when applying for a lawsuit loan is that you have legal representation and a strong claim.
You can use the funds for any purpose.
As we will outline below, there are some drawbacks to lawsuit loans as well as many benefits. Only you and your attorney can decide whether the positives outweigh the negatives and whether pre-settlement funding makes the right choice for you.
How Pre-Settlement Funding Works
In the first instance, you apply to a legal funding company, either online or on the phone. You will need to provide the following:
- Contact details of your attorney
- The basic facts of your case
A reputable legal funding company should promptly evaluate your claim by liaising with your lawyer. After assessing the strength of your claim and the value of the expected settlement, the lender will send a funding agreement to your attorney.
This agreement is a non-recourse contract. You agree to pay a portion of your future settlement to the lender if you win your case.
The non-recourse nature of this financing means the lender shoulders significant risk. For this reason, you will be unable to get pre-settlement funding unless you have a lawyer representing your claim. Beyond this, the legal funding company must be confident you will win your case and reach a satisfactory settlement.
You may need to approach several legal funding companies before you find one offering rates and fees in line with your needs and budget.
What Is a Non-Recourse Financial Product?
A non-recourse financial product involves the lender assuming all the risk. As the consumer, you will pay for the service in terms of fees and interest rates.
Unlike a traditional loan, a lawsuit loan is only repayable if you win your case and receive a personal injury settlement. If your case settles, your attorney repays the legal funding company the principal, interest, and funding fee in full from your final settlement. There are no monthly payments like with traditional loans.
When applying for legal funding, your creditworthiness, employment status, and income are not considered. Instead, the success of your application is predicated on the strength of your claim and legal representation in place. Legal funding does not impact consumer credit ratings in any way.
Usury laws – state laws limiting interest – do not apply to legal funding. Lawsuit cash advances are non-recourse financial products, as outlined above, not loans. This means you should look closely for the interest rates and costs of lawsuit loans before signing an agreement.
What Costs are Involved with Lawsuit Loans?
If you win your personal injury case, you agree to pay the principal amount you borrowed against your lawsuit, in addition to interest and a funding fee, also known as an origination fee.
Watch out for legal funding companies that charge compounding interest. You could end up paying an APR of 60% or more with compounding interest. If your case takes some time to resolve, you could pay back more than double the amount you borrowed.
Many legal funding companies charge slightly higher funding fees but much lower rates of simple interest that is non-compounding. The fees are anyway not payable out of pocket, but rather from your final settlement. This will prove a much cheaper way of borrowing.
The funding fee for legal cash advances typically runs from 2% to 4% monthly. This might initially sound reasonable, but it represents an annual percentage rate of up to 60%.
When you receive your settlement check, your attorney deposits it into the law firm’s trust account or escrow account. Once the check is cleared by the issuing bank, your attorney makes the following deductions:
- Lawyer’s fees
- Legal expenses
- Medical liens
Your attorney then repays the legal funding company before sending you the remainder, minus any other relevant costs, either by direct deposit or by a check.
The Pros and Cons of Pre-Settlement Funding
Like all financial products, pre-settlement funding comes with its benefits and drawbacks. Everyone is different and everyone’s financial circumstances are different, so all that counts is whether a lawsuit loan makes sense for you.
Settlement Funding: Pros
- You can buy time to negotiate a better settlement: Often, an insurer makes a lowball initial settlement offer. This is understandable as they are trying to pay as little as possible in damages for each claim. If your attorney presents a counteroffer, though, and if you provide evidence for your costs and damages, you should be able to negotiate a better settlement offer out of court. Sometimes, negotiation and mediation are unsuccessful, and you might want to file a personal injury lawsuit against the defendant in pursuit of compensation. Litigation is time-consuming, and if you are faced with financial stressors, you might be tempted to give in to a poor settlement offer. If you get some of your settlement money early, on the other hand, you will have the breathing space to better negotiate.
- Lawsuit loans can be an effective tide-over measure: If medical expenses, rent or mortgage payments, and general living costs are mounting while you need time off work to recover from accident injuries, pre-settlement funding is an efficient stop-gap, giving you cash when you need it most.
Settlement Funding: Cons
- Lawsuit loans can be expensive: If you win or settle your personal injury case, you pay the lender from your final settlement funds. If your case takes some time to settle, you could find interest charges mounting. Again, consider a legal funding company that charges simple and non-compounding interest rates.
- Not all cases qualify for pre-settlement funding: Due to the non-recourse nature of legal funding, the lending company shoulders a great deal of risk. To mitigate this risk, lenders will only offer cash advances if they are confident you will win your case. They also insist that you have legal representation. You may find you need to approach several legal funding firms before finding one that enables you to access some of your settlement money early.
Access Your Settlement Early Through Uplift Legal Funding
Now you can see the benefits and drawbacks of legal funding, you can determine whether this makes the right solution for your financial situation.
For those who want to get their settlement early, we charge simple non-compounding interest to keep your costs down, even if your case takes some time to settle.
It’s easy to apply by phoning toll-free at (800) 385-3660 or by filling in a simple online application. All you’ll need to provide is the contact information of your legal counsel and the facts of your case.
We will promptly evaluate your claim by consulting your lawyer. If your application is successful, we will send your attorney a funding agreement. You could have a portion of your settlement the very next day.