Determining Settlement Loan are Risk to Plaintiffs
Settlement loans are financial transactions where plaintiffs with pending lawsuits access a portion of their case’s value, prior to their conclusions. Plaintiffs sell a portion of their potential award to lawsuit “lenders” and receive immediate cash in return. This influx of money can be used for any expenditure but are mostly used to weather the long, drawn-out litigation process plaintiffs commonly face. There is settlement loan risk. But there are risks on both sides of the transaction. In this post, we analyze settlement loan risk for plaintiffs and lawsuit funding companies.
Settlement Loan Basics
Many reasons exist as to why lawsuits take significant amount of time to conclude. More important than the question “why?” is understanding how legal system delays give rise to lawsuit funding. Plaintiffs, many who are injured as a result of an accident, often are unable to meet their financial obligations while they pursue justice. To ease the strain, many clients ask their lawyers for an advance on the lawsuit proceeds. However, state ethics rules often prohibit the practice of advancing money to plaintiffs in anticipation of settlement – the idea is to discourage attorneys from paying for clients.
Policy reasons offer no relief for injured plaintiffs who desperately need to find a way to keep current on their monthly obligations. Lawsuit loans are designed to fill this need.
Also known as settlement loans, these deals advance money to personal injury and other plaintiffs prior to settlement. Settlement loans are different from traditional loans since they are non-recourse. This means the advance must be repaid from the recovery itself and not from plaintiffs personally. Essentially, they only repay if they win their cases. This unique feature affects settlement loan risk for investors but are also a low-risk option for clients.
Structure of Transaction Affects Settlement Loan Risk
As stated above, the unique nature of settlement loan transactions affects settlement loan risk. This is because risk to investors is increased. As investment risk increases, so must lawsuit loan cost. Below we investigate settlement loan risk for both plaintiffs and funding companies.
Settlement Loan Risk for Plaintiffs
Settlement loans are often referred to as risk-free transactions because they are only repaid if the lawsuit is successful. Someone must bear the risk of loss, and that someone is usually the consumer. Thus, the risk of loss reveals itself in lawsuit loan rates and other fees plaintiffs must repay in the event of a successful resolution of their cases.
Settlement loan risk is evident in competitive pricing models for lawsuit loans. While there are differences between personal loans and lawsuit loans, the most glaring difference is the use of a percentage rate and its application to the funding contract amount. Personal loans secured by collateral (e.g. mortgages, car loans, home equity lines of credit (HELOC), and others begin at 5% and can reach up to 10% under current market conditions.
Lawsuit loans are largely unregulated. Yet, market forces keep prices down to competitive levels if plaintiffs spend the time to diligently shop for lawsuit loans. Generally, search for settlement funding rates around 18% every 6 months. Of course, additional fees can add to the overall expense, so be sure to ask questions.
Costs may be higher than traditional loans but settlement loans are generally a risk-free proposition for plaintiffs.
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Settlement Loan Risk for Investors (Lawsuit Funding Companies)
Settlement loan risk may be minimized for plaintiffs, but the risky nature of lawsuit loans is exactly why they cost more. Consider that any loss for a lawsuit loan company is a total loss of investment. Consider further that losses only represent a portion of the line item expenses funding operations must meet before profit can be realized.
Because the loss of a particular case is a total loss, lawsuit loan underwriters must analyze their lawsuit loan approvals in relation to overall portfolio concerns. Indeed, managing lawsuit funding investments is a study unto itself and requires a level of expertise above and beyond just analyzing the merits of a particular case. Managing settlement loan risk can mean the difference between a profitable/unprofitable enterprise.
More on Settlement Loan Risk
In short, settlement loan risk is shared between plaintiffs and lawsuit lenders. Lawsuit loan companies bear the risk of loss. Plaintiff access risk-free lawsuit loans, but must also bear the cost as investors’ risk of loss is reflected in the pricing.
Find Out More
To find out more about settlement loan risk and/or the benefits of lawsuit loans, simply give us a call. When you do, you’ll reach a LIVE representative that will answer all of your questions – not some operator that will take down your information so that a salesperson can follow up.
We are experts in this area and have been helping plaintiffs since 2007. We are legal professionals, so we are especially aware of the challenges plaintiffs face during litigation. We are here to help you stay on your financial feet – while your case progresses.
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.
