What to know Before Choosing Settlement Funding?
Personal injury claims frequently take months or even years to resolve or go to trial. On a positive note, if plaintiffs are waiting on a settlement payout, there is a no-resource loan available called settlement funding.
As you may know, various types of loans require repayment and collateral, such as your personal assets, if the borrower defaults on the loan. That means that a bank can come after you with a traditional loan and take over your assets if you don’t pay them back.
However, there is no need for repayment settlement financing or lawsuit funding because they are not traditional loans. With an advance on your future settlement, the potential compensation you collect once your case is settled is considered the collateral and is deemed the only repayment mode. In contrast, as a result of losing a settlement and not recovering from your case, there is no need to pay anything, which means you don’t owe anything back.
You can potentially get funding for your case from a lawsuit funding firm if you become involved in a legal matter and need financial assistance to help you cope.
While these loans may seem alluring, it is important to make sure you exercise prudence and think whether or not this is the right course of action for your situation.
Should You Get Funding for Your Lawsuit?
During a case, settlement funding can be used to pay daily costs like food and rent. It is possible to get a variety of funding products in this industry with some lenders, some of which offer advances between appeals and trials. For example, if you have a strong probability of succeeding on appeal, you might be able to obtain financing for your case.
Some companies don’t require a court filing to provide funds as long as the defendant accepts liability.
In contrast, others provide advances for people stuck between a settlement and receiving their checks. This type of product is called post-settlement financing.
No matter what financial product you choose in the legal finance industry, they all have one thing in common, you only have to repay these funds if you receive a settlement or win the dispute.
Take the time to compare the different financial agreements before deciding that settlement funding is the best choice for you. Before agreeing to any lawsuit funding contracts, you should also ask yourself a few questions.
Before obtaining a litigation loan, bear in mind the following advice:
Think About All Your Options
Examine your expenses, income, and savings before taking out any kind of loan to see if it’s the best course of action for your circumstances. You might occasionally be better off borrowing money from family members or using your savings to pay for your expenses. In some circumstances, you might be able to obtain an insurance or disability payout to assist.
Pros and Cons in the Legal Funding Industry
Should you get settlement funding to get by until you settle your case or receive a judgment if you need money in the middle of a court case? There are a variety of firms that provide funding for most types of cases, such as Baker Street Funding.
Many plaintiffs (especially in personal injury cases) seek lawsuit funding (also known as settlement funding, lawsuit loans, or lawsuit cash advances) when they are struggling to pay their living costs and have insufficient income.
Settlement funding may buy you some time to negotiate a good settlement whenever you’re unable to pay for living expenses and other bills while your lawsuit is pending. However, they are not always the best option. This is why:
- Lawsuit financing is pricey and the rates are high due to the humongous risks for investors.
- Not all cases are eligible for settlement financing.
- Unlike other loans, litigation funding is typically not subject to regulation since they do not work like traditional loans.
- Finding a reliable lender could be challenging.
Additionally, very few consumer protection organizations have vehemently opposed lawsuit lending or actively advocated for its regulation. These consumer advocacy groups have discovered themselves allied with organizations that aren’t necessarily known for their support of consumers either, such as insurance firms and corporate associations like Chambers of Commerce.
Pros of Suit Loans
The two main benefits of litigation cash advances are listed below.
A Lawsuit Loan May Give Financial Relief
If you find yourself unable to cover your bills while your case is pending, lawsuit funding may be able to give you the breathing room you need.
Litigation funding could give you more time to reach a favorable settlement.
Taking out funding may allow you to analyze settlement proposals more carefully if you’re dependent on the settlement or award to pay for demands like medical costs or to provide income. As a plaintiff, your aim should not be to drag out the legal process but rather to get justice and a fair outcome.
Cons of Lawsuit Loans
Even if you are in need of money, a lawsuit loan may not be the best option for you. The main drawback of getting a lawsuit cash advance is listed below.
Legal Loans Can Be Expensive
You will repay the principal you borrowed from the lender with a funding charge or interest payment that might be double or triple what you borrowed when you repay them out of the settlement or judgment award. You won’t be required to pay more than the settlement or award, though.
The annual percentage rate on a typical litigation loan might range from 27% to 60% since many cases do not end up recovering and settlement funding companies lose money every day on cases they thought were secure enough to win. A perfect example is an article written by Bloomberg, on how an attorney refused to pay his legal financing dues.
This story does not mean that you should settle to pay outrageous rates either. Never pay more than 42% per year and ensure your contract mentions a cap on the rate when it ends. Never sign a lawsuit funding agreement that has no caps or one that caps after 3 years from your advance.