Some people may advise you against pre settlement loans because of the high interest rates but the truth is, it’s not always the case. There are factors that may cause the rates to rise steeply, and there are also ways to find reasonable rates.

If this is your first time to obtain this kind of loan, it will benefit you greatly to find out what these factors are. Keep in mind that these loans can be very helpful because they provide you with the funding you need to pay for your medical bills, living expenses and just about anything that requires cash, as you wait for your lawsuit settlement.

Here are the factors that have an impact on the interest rate of your loan:

1. Your lender

Lenders charge different interest rates on pre settlement loans, from 1% to as high as 6% per month. On the face of it, such interest rates don’t seem so bad. However, the rates are often compounded. So, for a 4% interest rate, a loan of $1,000 could become $2,563.50 in two years (24 months). It’s important therefore to check the interest rate of the lender before applying for a pre settlement loan. Also check if they charge an application fee. If they do, request to have it waived or simply find another lender.

2. Your location

Some states have already regulated the litigation funding industry including Maine, Nebraska and Ohio. Other states are following suit, such as Texas, where a bill was filed by Rep. Doug Miller to cap the interest rate to 10% per annul. In states where this industry is vastly unregulated, the interest rates may be quite high so it’s imperative that you take as much time as possible to find a lender that charges fair rates and fees.

3. The amount of time involved

Generally speaking, the longer your case drags on, the more you’ll be paying your lender in interest and fees. As mentioned earlier, the interest can be compounded so even at 4% interest, you could easily double the principal amount if your case takes a year or more before it gets settled.

For this reason, it’s always advisable to choose a loans provider which will put a cap on your interest upon reaching a certain period of time (i.e. 12 months).

Pre Settlement Loans are Non-Recourse Loans

You might be wondering why the interest rates of pre settlement loans are very high. The reason behind this is that the lender takes a lot of risk when they grant you the loan. If you don’t receive a settlement, you don’t have the obligation to pay the lender. If you don’t receive a jury award, then your lender will not receive any payment. It is because of these risks that the interest rates are high when obtaining such loans.

Lawsuit lenders are not created equal. Not every lender follows ethical guidelines, and some can even be abusive. However, with the right lender, you can avail such loans with fair rates to help you with your financial problems as you wait for the outcome of your case.