What do Settlement Loans Cost? The Answer Might Surprise You

Settlement loans, sometimes referred to as legal funding or lawsuit loans are specialty financial transactions where plaintiffs receive a portion of their recovery prior to their cases’ conclusion. So how much do settlement loans cost? In this post, we examine settlement loan cost and what that means for plaintiffs who cannot endure the long, drawn out litigation process.

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What are Settlement Loans?

Settlement loans are agreements between plaintiffs and lawsuit “lenders” who advance a portion of a lawsuit recovery in anticipation the case will be resolved successfully. They appeared in response to the financial hardships many plaintiffs face while their cases are litigated. Their purpose is to bridge the gap between the filing of a claim/lawsuit and receipt of compensation.

Because settlement loans are designed as a transfer in property rights in the future proceeds, the lawsuit funding company is only repaid if the case is successful. These deals are non-recourse, meaning the funding company cannot pursue plaintiff personally for repayment. According to most lawsuit funding contracts, the advance must be repaid by the lawsuit proceeds itself.

Lawsuit loans generally cost more than traditional loans. Yet the differences between traditional personal loans and lawsuit loans cannot be overstated because these differences are important factors in determining settlement loan cost. While traditional loans imply repayment at some point in the future, lawsuit loan repayment is contingent upon a successful outcome. This additional risk must be reflected in lawsuit loan pricing.

The other variable is the time it takes for a lawsuit to resolve. This cannot be known in advance, settlement loan cost (repayment) varies according to when the cases conclude and plaintiffs compensated.

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The Good News

Loans and lawsuit loan risk differences have an impact upon settlement loan costs, but there is good news. First, plaintiffs can get much needed financial support in a hurry – much shorter than traditional loan processing. Often lawsuit loans are funded on the same day. This is of primary importance since bills must be current else plaintiffs be forced to accept low-ball settlement offers just to keep the lights on.

Because the sole criteria for lawsuit loan approvals is the likelihood of a particular lawsuit’s success, lawsuit funding analysis is only concerned with the facts of case. Similar fact patterns routinely emerge in negligence lawsuits, which are the lawsuit type most litigation funders prefer. This often results in a short wait between the time of application and lawsuit loan approval. Settlement loan approvals are streamlined as funders are aware plaintiffs’ financial affairs need an immediate fix.

Second, lawsuit loans often lead to higher settlements since attorneys are afforded the time needed to endure legal system delays inherent in the judicial process. Allowing lawyers the ability to properly work up cases can lead to higher settlements which is in everyone’s best interests. Lawsuit settlements make sense for all involved parties since trials before a judge and jury are risky propositions.

Finally, the unique nature of settlement loans make them available to almost anyone with a pending claim/lawsuit. Traditional loan factors such as credit scores, employment history, asset verification and the ability to make periodic payments are not factors in the lawsuit funding underwriting process.

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Lawsuit Loan Rates and Structure

While a general discussion of settlement loans is important, it does little to answer the settlement loan cost question. Settlement loan cost really comes down to three factors. These are rates, structure and fees. Below we examine these three is a little more detail.

Lawsuit Loan Rates

Discussion regarding settlement loan cost usually revolves around lawsuit loan rates. While the rates lawsuit funders charge have a large impact upon case loan cost, most companies, especially those who base lawsuit loan origination efforts on the internet, offer competitive rates. Typical funding rates range from 18%-25% every six months. That rate is “charged” upon the contract amount and adds to the total repayment every six months until the advance is repaid.

Structure

Rates only tell part of the story however, since the calculation methods can differ. Consider a rate that compounds on the balance. Some lawsuit loan companies still offer compounding rate structures which applies a monthly rate on the previous month’s balance. Since the rate is applied to an increasing balance and not the original contract amount, settlement loan cost can increase more rapidly, especially if the lawsuit takes many years to resolve.

Fortunately, most lawsuit loan companies offer “simple rate” calculations where the rate is applied only to the original amount. Nevertheless, since lawsuit loans remain unregulated in many states, companies are free to pursue their own creative rate structures. Prudent lawsuit loan shoppers can educate themselves on the differences relatively easily through some research and/or a phone call to a reputable lawsuit loan company.

Other Settlement Loan Costs

The last settlement loan cost factor involves charges and fees contained in the contract. It is common practice with most loan products that processing and other fees be charged to clients. Indeed, even car loans and mortgages contain processing, monitoring, origination and other fees. Learning how to shop for a lawsuit loan means learning about all the factors which contribute to what settlement loans cost. Savvy plaintiffs who want to get the best deal can even ask if there is a best price guarantee offered by a particular company.

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Finding More Settlement Loan Cost Information

Finding the best deals for settlement loans has never been easier. To learn more about lawsuit loans and how you can qualify for settlement funding, simply pick up the phone and give us a call. You will reach a live representative who can answer all your questions.

Why Choose Fair Rate Funding

You obviously have a choice in who you use for legal funding. We offer:

• Simple and Easy Process – Approval only on strength of your case.
• Risk – Free Proposition – Only repay if you win your case.
• Rapid Approval and Funding – Approvals often within 24 hrs.
• Up Front Pricing – Absolutely no hidden fees.

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