Settlement Funding Buyouts Show Flexibility
Often, clients receive lawsuit funding and later need more money than their original lawsuit cash advance. Lawsuit funding companies usually give more money to a plaintiff/client with a strong enough case to justify the additional risk. But the determination is subjective. That is, the lawsuit funding company can simply refuse to advance any more money on the case.
When this occurs, the client has a choice to make. Either they find another source of money outside the lawsuit funding arena, or they find another settlement loan outfit to advance them more money.
Settlement funding buyouts are an option for plaintiffs who’ve receive funding before, require additional funds, and the original funding company denies the application for more money. In this post, we examine settlement funding buyouts and their effects.
What are Settlement Funding Buyouts?
Most lawsuit loan contracts require any subsequent lawsuit “lender” repay a previous lawsuit loan prior to advancing additional funds on a particular case. A lawsuit loan buyout is when a second settlement loan company pays the original company in full and advances more money to the client. The advance is “re-financed” because the plaintiff now must repay only the second lawsuit lender.
At Fair Rate Funding, lawsuit funding applicants routinely apply for additional funding after an initial lawsuit loan is received. If the applicant received lawsuit funding from another company, we call these cases “buyouts”. This term is used because in order for a lawsuit funding applicant to receive additional funds, the prior advance must be paid in full by the “new” settlement funding company. This is because the second funding company does not want to be second in line when it comes time to repay the advance.
Settlement funding buyouts can be tricky since lawsuit lenders will only advance a certain amount of money on a case. That amount is normally 8-12% of the estimated settlement value of the lawsuit. If the prior funding “payoff” is at or near this amount, no additional funding is generally offered.
The Benefits of Settlement Funding Buyouts
Settlement loan buyouts occur every day. And these transactions can actually benefit plaintiffs.
Consider a plaintiff who signs a $10,000 lawsuit funding agreement which calculates the “use fee” (interest) at 3.25% per month compounding monthly. The nature of this rate structure is to lower the repayment amount in the first year and a half of the contract term. In other words, the payoff for these contracts would be cheaper for the client if the contract were to settle in the first 18 months after the advance.
Due to unforeseen circumstances, the client learns his case is several years away from getting a trial date. There could be many reasons for legal system delays, but what is important to realize is that the longer the case drags on, the more the settlement loan costs. Because the percentage charge is calculated on the previous month’s balance, the higher balance generates a higher payoff amount. This is known as a “compounding effect”.
Contrast this to a fixed six (6) month “use fee” structure where the charge is calculated on the original contract amount and not the previous month’s balance. The “charge” for the use of the money remains the same at the end of the case as it did at the beginning. In this situation, the client may be far better off “refinancing” his existing advance with a lawsuit funding with a different lawsuit loan rate structure.
By comparing simple v. compounding rates with lawsuit loans, you can see that settlement buyout benefit clients by locking in an use fee that is non-compounding. Clients get more money before the case is concluded and pre-settlement funding companies get “fundable lawsuits” to invest in.
Lawsuit Funding Flexibility Allows for Creative Solutions
Lawsuit loan flexibility meets clients’ particular needs because there are no hard and fast rules (regulations) stating what two free market participants can do when they enter into a contract (lawsuit funding agreement). As such, funding structures such as buyouts, monthly stipends, and flexible repayment terms all afford plaintiffs the ability to tailor the transaction to suit his/her needs.
For More Information
To learn more about the unique nature of the lawsuit funding business, you can access the library of articles on the Fair Rate Funding Blog. You can also visit our Frequently Asked Questions page.
Or, you can simply give us a call or contact us online. A live representative will answer/contact you and answer any questions you might have.
Why Choose Fair Rate Funding
You obviously have a choice in who you use for legal funding. We’ve been in the legal funding business since 2007 and 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 settlement funding buyouts and the lawsuit funding business.
