If you sustain injuries in an auto accident, or you are filing suit for medical malpractice or a product liability claim, you may need time off work at the same time as medical bills start mounting.
Settlement funding, also known as pre-settlement funding, is a cash advance against an anticipated settlement or award. This form of financing helps many people avoid financial hardship while recovering from accident injuries and waiting for a compensation claim to settle.
What Is Settlement Funding?
Settlement funding gives you money now in return for a portion of your anticipated settlement award, plus interest. You can use these funds for any purpose.
While settlement funding is often referred to as a lawsuit loan, legal funding constitutes a cash advance rather than a traditional loan.
This type of financing is non-recourse, meaning you will pay nothing unless you win your claim.
Lawsuit loans are not the most appropriate solution for everyone. Today’s guide will help you establish whether settlement funding might be beneficial while you are waiting for a personal injury settlement.
Why Is Pre-Settlement Funding Necessary?
If you are a victim of a personal injury claim – an auto accident or an incident of medical malpractice, for example – it can take months for the case to settle, maybe even years if the case goes to trial.
While waiting for your settlement, you may find yourself unable to work, resulting in a loss of income. At the same time, you are likely to face extra expenses in the form of medical bills, prescription medications, and any other form of rehabilitation or therapy required.
Settlement funding allows plaintiffs to meet everyday or unexpected expenses while waiting for a compensation check to arrive. This form of financing can also be useful for victims of civil rights discrimination suits, and for heirs waiting for an estate to settle.
For many people in the above situations, a lawsuit cash advance is a better option than paying out-of-pocket from savings or taking out a traditional bank loan to help make ends meet.
Pre-settlement funding, then, is one option, but it is not always the most cost-effective or appropriate option. The more you learn about the process, the more easily you can determine whether a lawsuit loan makes the right choice for you.
How Does Settlement Funding Work?
You approach a legal funding company if you want to consider settlement funding. Initially, you provide the lender with the basic facts of your claim and the contact details of your attorney.
The lender will review your case, liaise with your lawyer, and evaluate the amount of any anticipated personal injury settlement. The lender will then offer you a cash advance in exchange for a portion of the future personal injury award or settlement.
Legal funding companies shoulder a great deal of risk due to the non-recourse nature of lawsuit loans. This means the lender will only offer cash advances to clients represented by legal counsel. The lending company must also firmly believe you will reach a settlement or win your case.
If you win your personal injury case, you repay the principal and a funding fee, as well as interest on the principal. If you do not win your case or reach a settlement, you repay nothing.
In some cases, you may need to approach more than one legal funding company before finding one prepared to offer a cash advance on the strength of your forthcoming settlement.
Is Settlement Funding a Loan?
Litigation cash advances are non-recourse financial products unlike traditional loans.
Lawsuit loans differ from traditional bank loans in that they are not legally required to be repaid unless the settlement or court award materializes.
Additionally, credit checks do not form part of the application process, and legal funding has no impact on consumer credit ratings.
Beyond this, you do not make monthly payments with lawsuit loans. Instead, you repay the principal plus interest and funding fee in full from your future personal injury settlement.
Since lawsuit loans are not actually loans, they are not always regulated in the same way as traditional bank loans. Considered investments rather than loans, state laws limiting interest – these are known as usury laws – do not apply if the funds are not considered loans.
So far, so good. How much will a lawsuit loan cost, then?
How Much Does Settlement Funding Cost?
When you take pre-settlement funding, you agree to repay the principal plus interest, as well as a funding fee.
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%.
You should note that your lawsuit could take months to resolve, and possibly even years in the event of complicated litigation and appeals. What this means is that you could pay back double or even triple the amount of money you borrow through settlement funding.
You repay the cash advance from your settlement funds or judgment after all other expenses are covered. After reaching a settlement with a defendant or obtaining a judgment in court, there are some immediate expenses to be paid, including:
- Attorneys’ fees
- Litigation expenses
- Medical liens
With these expenses paid, the lawsuit lender is repaid. You then receive the remainder.
What Happens if You Lose Your Case or Your Case Settles for Less than Anticipated?
If you lose your case, you do not repay the cash advance. The lender bears this risk, but it is passed on in the form of higher costs.
Similarly, if your case settles for less than anticipated, you will have to repay more than the total value of your settlement, regardless of how much you borrowed by way of a lawsuit loan.
The Benefits and Drawbacks of Lawsuit Loans
As with any financial product, lawsuit loans have certain advantages and drawbacks. These will vary from person to person.
Benefits of Settlement Funding
- Settlement funding can be an efficient tide-over measure: If you are faced with living expenses, mortgage payments, car loan payments, or medical bills and you cannot cover these costs, pre-settlement funding can give you valuable breathing space.
- Legal funding can buy you the time to negotiate a superior settlement: As a plaintiff in a personal injury case, your goal should be to obtain a fair and reasonable settlement. While you should not prolong litigation, you should not rush the process either. If you need some financial respite while negotiating with the insurer for a superior settlement, a lawsuit loan can provide you with cash when you need it and the time to pursue a fairer settlement. Beyond this, if you are unable to reach a settlement agreement, a lawsuit loan could help you to file a lawsuit against the defendant, pursuing compensation for your injuries and losses in court.
Drawbacks of Settlement Funding
- Not every case qualifies for pre-settlement funding: The non-recourse nature of settlement funding means the lending company is taking a significant risk. As such, funding companies will only offer cash advances when confident you will win or settle your case. This means you might need to approach more than one legal funding company, especially if your case is not strong.
- This form of funding can be expensive: Assuming you win or settle your case, you will repay the lender from your settlement or judgment funds. You will repay the principal in addition to interest and a funding fee. Depending on how long your case takes to settle, this can work out a costly way of borrowing. That said, you will never have to repay more than your total award or settlement value. On a $25,000 cash advance, for instance, interest charges could amount to $12,500 annually. With interest on legal funding compounded monthly, you could pay $32,000 in interest if your case takes two years to settle. This interest charge would be in addition to the $25,000 you borrowed.
Are You Protected by Government Regulation if You Take Pre-Settlement Funding?
The state and federal government tries to protect consumers from unscrupulous lenders in most areas of consumer credit. Examples include when you sign:
- Student loans
- Promissory notes to buy property
- Credit card applications
- Auto installment loans
- Rent-to-own contracts
Laws govern consumer credit in the following ways:
- By controlling how the lender discloses loan terms
- By limiting the amount of interest a lender can charge
Some states, along with the federal government, stipulate how a lender must disclose the terms of a loan, including:
How the rate of interest is calculated
How much interest is due over the lifetime of the loan
Penalties for failing to repay the loan
Other fees associated with the loan
In these ways, you will be protected against lenders and better able to make an informed decision about any loan you are considering, including a lawsuit cash advance.
Alternatives to Lawsuit Loans
While a lawsuit loan might be beneficial for some people in some situations, there are also many other options to explore if you need cash while waiting for a personal injury settlement.
The first option is to use savings, replenishing your emergency fund from the settlement just as you would repay a lawsuit loan.
Some people find friends or family can extend low-interest or no-interest loans. This may be an avenue worth exploring, depending on your circumstances and your personal network.
Traditional bank loans and personal loans will usually offer lower interest rates than lawsuit loans. They also typically have fewer fees. For a traditional loan, your financial situation and creditworthiness are qualifying factors, so you may not be eligible for an unsecured personal loan.
Some people awaiting personal injury settlements decide to borrow money against the equity in their homes or 401(k) accounts. This strategy endangers your home if you fail to make loan payments.
Ultimately, settlement funding might prove the most effective method of getting cash when you need it in exchange for a portion of your anticipated settlement.
Get Settlement Funding from Uplift Legal Funding
If you feel legal funding makes sense for you, applying with Uplift Legal Funding is straightforward and hassle-free.
You can apply online or by calling toll-free at (800) 385-3660. In the first instance, you need to provide only the basic details of your case and the contact information of your attorney.
After reviewing your case and liaising with your lawyer, we will typically send you an offer of a cash advance the same as the application, with funds available within 24 hours in many cases.