Lawsuit Loan Fees – What You Need to Know
Lawsuit loans, also known as pre-settlement funding, are financial transactions which serve as a financial lifeline for plaintiffs awaiting settlements during lengthy legal battles. They are offered in an unregulated marketplace and as such, pricing can vary immensely. Those wishing to obtain lawsuit loans would do well in understanding lawsuit loan transactions and their cost. In this post, we examine these costs by listing the most common types of lawsuit loan fees. The hope is that you can make informed decisions in your search for financial relief.
What Are Lawsuit Loans?
Lawsuit loans are not typical loans. Instead, they are cash advances provided to plaintiffs based on the anticipated settlement or judgment in a pending lawsuit. If the case is won, the plaintiff repays the lender out of the lawsuit proceeds. If the plaintiff loses the case, the lawsuit loan is not repaid. This non-recourse nature of lawsuit loans makes them attractive, but it also comes at a higher cost.
Personal loans and lawsuit loans are different. Lawsuit “lenders” risk money on advances that may never be repaid. Regular loans imply repayment at some point in the future. Lawsuit loans are entirely dependent upon a successful outcome. They carry more risk. And that additional risk must be reflected in lawsuit loan costs.
Common Types of Lawsuit Loan Fees
Fees on financial transactions generally consist of two types. First, there are up front fees which reflect the costs of investigating the transaction and whether it will be profitable for the lending institution. Second, fees associated with the processing of the transaction itself which are contained in the financial contract signed by the grantor and receiver of the money.
Up Front Lawsuit Loan Fees
You will generally NOT see upfront lawsuit loan fees in the legal funding industry. This makes sense because plaintiffs seeking lawsuit loans are usually doing so as a last resort to solve their financial troubles. If a plaintiff is having financial issues, upfront lawsuit loan fees would be a barrier to securing the help they need.
On Contract Lawsuit Loan Fees
The cost of processing lawsuit loans can be offset by on-contract fees. These fees are added to the advance amount and the resulting sum is often referred to as the “purchase price”. That is, the amount of money paid by the lawsuit lender (buyer) to the plaintiff (seller) in the transaction. Remember, plaintiffs sell a portion of their recovery in lawsuit loan transactions. The deals are structured as a transfer of property rights in a portion of the future proceeds of a lawsuit, if any.
Lawsuit loan fees can have any number of labels placed on them. Below we explore some of the more common lawsuit loan fee types.
Lawsuit Loan Rates
One of the most significant costs associated with lawsuit loans is the lawsuit loan rate. Lawsuit loans generally use two different types of rate structures – compounded and non-compounded. Compounded rates calculate repayment by charging a monthly percentage rate applied to the purchase price. The next month, the percentage rate is calculated on the previous month’s balance and so on. Thus, the rate “compounds” on the balance and can be more expensive if the lawsuit drags on for years.
Non-compounded lawsuit loan rates are more common in the industry and companies compete for good cases to fund. This type calculates the percentage rate on the original amount and adds it the payoff. The calculation is always on the original purchase price and not on the payoff balance. To better understand the differences between the two rate structures, please refer to Lawsuit Loans – Getting Down to the Truth.
Fair Rate Funding charges a “fair” rate of 18% of the contract amount every six (6) month period thereafter for preferred cases. We also provide a lawsuit loan price guarantee – if we approve your application and another legal funding company sends you a written contract to advance the same amount at a lower total cost, we will beat that deal or pay you $250 guaranteed!
Origination Fees
Some lawsuit lenders charge lawsuit loan origination fees, which cover the cost of acquiring the case. These are typically a percentage of the loan amount and are added to the advance amount as describe above. Origination fees are common when lawsuit funding brokers refer their clients to funding companies. They need to be compensated for their work and the origination lawsuit loan fee represents this compensation.
Processing Fees
Processing fees are lawsuit loan fees which cover administrative tasks related to your application and approval. These include tracking down documents, contract drafting, tax lien, bankruptcy and child support searches, and coordination with your attorney’s office. Like other lawsuit loan fees, this fee is added to the amount the plaintiff actually receives and is reflected in the purchase price.
If You Have Any Questions, Call 888-964-2224
WE ARE HERE TO HELP YOU!
Underwriting Fees
Before granting a lawsuit loan, lenders evaluate the merits of the case to assess the likelihood of a favorable outcome. Some companies charge a fee for this evaluation, and this is known as an underwriting fee. It is used to offset the cost of having lawsuit loan underwriters evaluate the claim/lawsuit. They are generally a few hundred dollars but can be higher depending on the case’s complexity.
Settlement Fees
Once your case settles, some lenders may charge an additional settlement fee when collecting their repayment. This fee is usually a flat charge in addition to the principal and interest owed. Although most companies do not charge settlement fees, you should ask whether such fees apply and how they affect the total repayment amount.
How to Minimize Lawsuit Loan Fees and Cost
Loan fees are found in most loan transactions, not just lawsuit loans. These fees are used to offset processing costs in both traditional and legal lending. As noted above, legal lending carries more risk to investors. Lawsuit loan fees are one method used to price in this risk.
The good news is that if you are considering a lawsuit loan, there are ways to minimize lawsuit loan fees. These include:
- Shop Around – Different lenders offer different fee structures, so it’s essential to compare offers from multiple companies before committing.
- Negotiate Terms: In some cases, lenders may be willing to reduce their fees or interest rates, particularly if your case has strong potential for a favorable outcome.
- Borrow Only What You Need: Since interest and fees accumulate over time, borrowing only the minimum amount necessary can help keep the loan costs manageable.
- Ask About Non-Compounding Interest: Most legal lenders may offer non-compounding interest, which can save you a substantial amount in the long run.
- Consider Other Funding Sources: Before taking out a lawsuit loan, consider other financing options, such as personal loans, family assistance, or the selling of personal possessions.
Getting Started
Lawsuit loans provide much-needed financial relief for plaintiffs facing lengthy legal battles, but it’s essential to fully understand the fees involved. From lawsuit loan rates to origination and processing fees, the costs can add up quickly, especially if your case takes time to settle. By shopping around, negotiating terms, and borrowing conservatively, you can minimize the financial burden and make a more informed decision that best supports your case.
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.
Give us a call and learn about your options. We are here to help and are at your service.
Thank you for your interest in Fair Rate Funding.
