Pre settlement funding is a non-recourse cash advance, which you can obtain from a finance company in exchange for a promise to pay back the loan after you get a lawsuit settlement or if you win your case. Usually, people who have filed personal injury lawsuits can avail this type of funding.
Because it is a non-recourse loan, you don’t have to repay the money you advanced if your lawsuit is unsuccessful. If the settlement awarded to you is smaller than expected, you are not under any obligation to pay more than the amount of your settlement.
Before you consider this option, you have to know that there are legal, practical and ethical considerations in this type of financing.
How It Works
Usually, an injured individual files a lawsuit against a person or company. When he finds himself unable to pay for his bills (medical and day to day expenses), he borrows money from friends and family members. If that’s not possible, he applies for pre settlement funding. He fills out an application form and the finance company contacts the applicant’s lawyer and obtain information about his case.
From there, the lender will estimate the value of the verdict or settlement and then offers a loan based on their assessment. Some lenders charge a flat fee, others charge a monthly interest rate. When the case is settled, the borrower then pays the lender the principal loan amount plus interest/fees.
Most lenders offering this type of loan can lend anywhere from $500 to $25,000. Some can even offer as much as $100,000. The rates can also vary, with some lenders charging 1% and others as much as 6% per month.
Should You Get a Pre Settlement Loan?
Litigation can drag on for months and even years. And while your case is on-going, you would have to shoulder a lot of expenses. If you’re disabled as a result of the injury, things can get even more difficult for you. You can’t find a job, and you can’t pay for your bills. Pretty soon, you would have to file for bankruptcy and lose all your possessions.
While pre settlement funding may seem like a very practical solution, please note that it should only be your last resort. As much as possible, you should consider other options such as borrowing money from friends and family, your bank or credit union, etc. Remember that with this type of funding the interest rates are very high and it’s only an option if you really are in dire financial straits.
On the other hand, if you have a very strong case and getting pre settlement funding is the only possible way for you to get the compensation you deserve, then check several lenders, compare quotes and inquire about their interest rates and charges so that you can obtain the lowest fees possible. It’s a decision that must be made very carefully so discuss this option with your lawyer before taking action.