How to get a lawsuit loan
What happens once you’ve chosen the best pre-settlement funding company? Here’s what you can expect.
- Provide relevant details to the legal funding company: You can either call or fill out an online form with the basic details of your own contact information as well as your attorney’s. This step shouldn’t take more than a few minutes as long as you have that information on hand.
Also note that you don’t have to worry about a credit check since pre-settlement funding is structured as a cash advance, not a personal loan based on your income. It’s easy to get started without too much effort, especially if you want to compare multiple offers from different companies.
- Funding company has a discussion with your attorney: The next step is for the funding company to have a call with your lawyer to understand the details of your case. You can also give your lawyer’s office a heads up that a loan funding company will be contacting them shortly so they’re prepared with your case information.
- Case is evaluated: The funding company evaluates the merits of your case based on the details they receive from your lawyer. They assess how likely you are to win and what type of settlement you’re likely to receive. This helps them determine whether or not to approve you for a cash advance and, if you are a good candidate, how much they should advance you.
- Receive approval and offer: At this point, you’ll find out whether or not you’re approved for pre-settlement funding. If you are, you’ll get an offer that you can review. This outlines how much of an advance you’ll receive as well as the fee and repayment structure.
- Return documents and get funds: As long as the terms of the contract look good to you, you’ll sign the paperwork and return it to the lawsuit loan company. Oftentimes this can be done online with an electronic signature. Within a few days you should have the money deposited into your bank account, usually through a wire transfer.
Avoid borrowing more money than what you need so you don’t dilute your settlement amount with higher interest charges.
How pre-settlement funding is repaid after winning your case
After winning your case, your attorney’s office receives the settlement compensation to distribute in the appropriate order. First, the pre-settlement funding company is reimbursed to the amount it advanced to you, as well as fees and interest that were outlined in your cash advance agreement.
Next, the attorney’s office takes its fees based on the compensation structure you agreed on when they took your case. Then the settlement funds are used to pay off any outstanding medical liens if your case was a personal injury lawsuit that required medical attention. After all of those parties are reimbursed, you receive the remaining funds from your lawyer for your own use.
Important factors to consider when choosing a lawsuit loan company
Not all lawsuit funding companies operate in the same manner. It’s important to evaluate both the interest rate and pricing structure, as well as any other fees that may be assessed. Here are the most important factors to review as you make your decision.
Broker vs. direct funder
When researching your options, determine whether the company is a broker or a direct funder. A broker evaluates offers from multiple funders to provide you with options. The downside is that they charge a fee for this service. You can avoid those extra costs by working with a direct funder, but you do need to compare options on your own to find the best fit.
All lawsuit loan companies charge some type of interest on a settlement cash advance. Some options charge a flat fee instead, so it’s important to understand what to expect with each approval.
Interest rates vary from case to case, depending on the details specific to your situation. That’s why the funding company wants to talk to your lawyer and get a sense of the expected outcome. The riskier the outcome of your case, the higher interest rate is charged. This is where it may be good to compare more than one option, since not all companies calculate interest in the same way.
Simple vs. compounding interest
There are two ways in which a lawsuit loan company can charge interest: simple or compounding. With simple interest, any interest charged only applies to the original advance amount.
With compounding interest, the interest is charged to the total outstanding balance — including interest that previously accrued. That typically means you’ll end up owing a substantially larger amount than if the interest only applied to the original balance. If you can’t easily find the information, ask upfront what type of interest each lawsuit funding company charges.
Some companies may charge additional fees on top of interest, such as an application fee to review your case or a processing fee once you sign the agreement. You may also be charged a wire transfer fee by your bank when you receive the cash advance fund.
Ask the pre-settlement funding company about these details before you accept an offer. If you don’t receive a clear answer on the total expected cost of the cash advance, it’s usually a red flag. You’re likely better off trying different companies who are more transparent with their pricing structure.
Most pre-settlement funding companies offer non-recourse financing. That means you are not obligated to repay the loan if you lose your case. If you do win, then the full amount owed to the funding company (including the advance and any interest and fees) is distributed by your attorney’s office once the settlement check is delivered.
Because pre-settlement cash advances are a type of non-recourse loan, you don’t have to pay back the funds if you lose your case.
Advantages and Disadvantages of Pre-settlement Funding
Is lawsuit funding right for you? Weigh the advantages and disadvantages to help you make a decision.
- Receive cash quickly: Lawsuits can take a long time to reach a settlement, even if it doesn’t go to trial. In the meantime, pre-settlement funding can help you pay medical bills and other immediate living expenses.
- Your attorney has more time to negotiate a better settlement: You don’t have to feel pressured to take the first offer because of financial strain.
- No repayment if you lose your case: As a type of non-recourse financing, you’re not required to repay the cash advance if your lawsuit is unsuccessful. It’s a low-risk form of funding in that respect.
- No credit check or employment check required: Your personal finances are not considered as part of the application process. That means no credit check or income verification.
- High interest and fees: Both interest and associated fees can eat into the final settlement amount you actually receive.
- Not all cases qualify: Different companies work with different types of legal cases. You also need to find companies that are licensed to do business in your state.
- Careful research is required: As with any financial decision, it’s important to carefully research your options and read the advance contract language. If you’re unsure of the fees and repayment terms, talk to your lawyer to get some clarity.
Here’s what to look for in a pre-settlement funding company
- Direct funder: Steer clear of brokers, who charge additional fees for serving as a go-between. It’s an unnecessary cost that lowers the total settlement you’ll receive.
- Licensed to operate in your state: Each state requires individual licensing so make sure your area is included in the company you choose.
- Asks to speak to your lawyer and communicates well with them: A pre-settlement funding company shouldn’t skip this step, otherwise they’re not doing their due diligence in evaluating your case. It could even result in more fees if the company simply assumes a higher risk that isn’t there. A good communication process ensures a timely and well-supported cash advance offer.
- Charges simple interest rate: Non-compounding interest ensures your balance doesn’t escalate too much by charging on top of previously accrued interest.
- Charges a low interest rate: Each company creates its own offer to you based on their interpretation of your case. That means not all companies offer the same interest rate.
- Doesn’t charge upfront fees: A reputable company shouldn’t charge any fees upfront, including application or processing fees.
- Easy to understand terms: You should have clear expectations on how much this funding will cost you from start to finish. Ask questions if you don’t understand everything in your offer.
- No-pressure approach: You shouldn’t feel pressured to make a quick decision. Heavy pressure sales tactics are a red flag that the company may not have the best lawsuit loan out there.
- Quick funding times after approval: While you can’t necessarily control the amount of time it takes for the pre-settlement funding company to connect with your lawyer, you should know how long it takes to receive the money once you’re approved and receive the paperwork. Many companies deliver funds within a few days or even less.
- Good reputation and track record: Do a little digging to uncover the company’s reputation. This includes looking at its Better Business Bureau profile and online customer reviews on third party websites.
Shop around to get quotes from multiple legal funding companies. Some charge higher interest rates than others or give unfavorable terms, like compounding interest.
Do I need an attorney to get lawsuit funding?
Yes, most lawsuit loan companies will require that you have a lawyer representing you. This allows them to get an expert opinion on your case and determine how much to advance you based on your expected settlement.
Are there any restrictions on spending the money?
No, there aren’t any legal restrictions on how you spend the funds from your pre-settlement advance. But most people use the money to pay medical bills, their mortgage, or living expenses that have been impacted due to the event surrounding the lawsuit.
What cases are eligible?
It varies based on the funding company. However, common cases include personal injury, medical malpractice, premise liability, wrongful death, employment discrimination, and product liability.
What if I lose my case?
If you lose your case, you don’t have to repay the funds advanced by the lawsuit funding company.