How is Pre-Settlement Funding Different from Regular Loans
As you know, settlement funding seeks to level the playing field between well financed insurance companies and often under capitalized individual plaintiffs. The idea is to allow plaintiffs to refuse less than fair settlement offers simply because they are in a cash crunch. Pre-settlement funding is different from regular loans. In this post, we examine why.
Plaintiffs Who Need Cash Turn to Various Options
Plaintiffs, many of which are injured, often encounter financial difficulty while their cases progress through the legal system. The wheels of justice turn slowly as many cases take several years to reach a conclusion.
Dealing with a lawsuit is difficult enough. Coping with financial trouble only compounds the problem. Plaintiffs will turn to various sources of cash to ease their financial burdens. Although settlement funding and regular loans are different, they are two possible alternatives to securing financial support.
Settlement Funding Basics
Settlement funding is also known as settlement loans and are advances on a potential future settlement. They are structured as asset purchase agreements. That is, the lawsuit lender purchases a portion of the future asset (lawsuit recovery). In return, the plaintiff pledges, through the attorney, to repay the advance according to the contract terms. Repayment is dependent upon the amount of time which elapses from the contract date and settlement. Repayment is also contingent upon a successful outcome. If the lawsuit is lost, the advance is not repaid since what was purchased (the settlement) does not exist.
Regular Loans are Different
Settlement funding is different than loans because regular loans imply the amount borrowed must be repaid with interest at some point in the future. Unlike settlement loans, regular loan repayment is not dependent upon any other factor. Instead, it is assumed the loan will be repaid by the borrower over time.
This is why traditional loan underwriting is different than lawsuit loan underwriting. The former factors in the borrower’s creditworthiness through income verification, credit scores, asset searches, etc. If the borrower defaults, the lender has the right to pursue the borrower personally for any short fall or obtain collateralized or other property to pay off the debt.
An example of this is a home foreclosure. When a home is bought with a loan, the borrower signs the note. This is the debt agreement and outlines the payment terms and interest rate. The borrower also signs a mortgage which gives the bank certain rights under the law.
Mortgages are “secured transactions“. This means the bank retains a security interest in the property (collateral) until debt is paid in full. If the payments are not made, the bank forecloses on the property and sells it in the open real estate market. The money obtained is then used to satisfy the debt.
Settlement Funding Different than Loans
Settlement funding is different than loans in other ways as well. First, settlement funding is non-recourse. Under the contract, repayment comes from the settlement proceeds themselves, not payments made by the plaintiff personally. In fact, settlement funding companies cannot pursue plaintiffs personally for repayment. Further, there are no payments made under settlement funding agreements. This is different than typical loans.
Second, the criteria for evaluating loan applications are not used for settlement funding. Credit scores, income verification and asset searches are typically not used for settlement funding clients. Instead, the likelihood of the lawsuit’s success is the determining factor.
Settlement Funding Benefits
Since settlement funding is different than loans, it is wise to examine some settlement funding benefits.
As mentioned above, there are no periodic payments due under settlement funding contracts. Instead the payment is made at the case’s conclusion and only if the case is successful. Thus, an applicant need not worry about monthly payments.
Second, settlement funding requires no collateral which is unlike traditional secured financing loans. Although repayment is based upon a future asset (the lawsuit proceeds), as explained above, this is actually a sale of property.
Third, settlement funding companies essentially share the risk the plaintiff might lose his/her case. Remember, repayment is dependent upon a future outcome. If case is lost, plaintiff “keeps” the settlement funding.
Finally, the manner in which settlement funding is approved is different than loans. Evaluating a lawsuit for funding is different than evaluating a loan applicant’s creditworthiness. The result is the speed in which plaintiffs can access cash. Plaintiffs are routinely funded within days of application.
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How to Get Started
Plaintiffs must follow a straightforward lawsuit loan process to secure pre-settlement funds. Pre-settlement funding applications typically require:
- Information about the case and the expected settlement amount.
- Contact information of the plaintiff’s attorney.
- Certain documents such as medical reports, insurance information and medical records.
To get started, simply contact us at 888-964-2224. One of our representatives will guide you through the process. We are here to help you get what you need, when you need it. When financial strain forces you to consider accepting less than you deserve, don’t wait – call Fair Rate and let us help you. Apply Now.
Thank you for your interest in lawsuit settlement funding.
