Process of getting a lawsuit loan
Here’s a step-by-step breakdown of what to expect when working with a funding company as you wait for your settlement.
- Contact a pre-settlement funding company and provide attorney information.
Most pre-settlement funding companies have an online form or phone number to call to start the process. You’ll provide some basic contact information as well as your attorney’s contact information. There’s generally no credit check or other evaluation of your personal finances since lawsuit funding is based on the merits of your case.
- The funding company contacts your attorney.
The company you work with talks directly to your attorney to review your case. This helps the company better understand the nature of your claim. It may take a few days for this part of the process, but your attorney’s office should be familiar with this type of request.
- Company evaluates the strength of your case.
Based on the discussion with your lawyer, the funding company evaluates the likelihood of winning and the probable settlement amount they expect you to receive.
- Receive final approval.
If the company feels confident in your case, you’ll be approved for the cash advance and can review the terms of their offer. Your cash advance offer will be a percentage of the anticipated settlement amount, usually between 10% and 20%. You can also see how the company charges fees, whether it’s interest that accrues over time during the settlement process, or a flat fee.
- Sign documents and receive your cash advance.
Once you feel satisfied with the terms of your settlement funding, you can sign the agreement (this is usually possible to do online). Then you can expect to receive the funds in your bank account via wire transfer or other form of deposit within a few business days.
Get multiple quotes to compare more than one company. This helps you identify above average rates, fees, or other unfavorable terms.
What happens after the settlement?
Once your lawsuit is successfully settled, the funds are distributed to your attorney, who receives a check with the total settlement compensation. They pay the pre-settlement funding company on your behalf. This includes the amount you were advanced, as well as the interest and fees charged by the company.
After that money is distributed, the lawyer also deducts their own fees for representing you in the case. Any medical liens related to the case are also paid using the settlement funds. Once all those outstanding fees are paid off, you get the remaining settlement balance.
If for some reason you do not win your case and don’t receive any settlement, you typically do not have to repay the cash advance.
How to choose a lawsuit loan company
With so many options available, you may wonder how to choose the best lawsuit loan company. Here are the primary factors to look at as you compare each one.
Broker vs. direct funder
There are two types of companies that help you with pre-settlement funding. The first is a direct funder. As the name implies, you work directly with the company that provides the funding. A broker, on the other hand, serves as a go-between. They suggest multiple legal funding companies for you to choose from and can help you decide.
Of course, they need to be paid for this extra legwork and so you can expect to pay additional fees with a broker. With online forms making it easier than ever to quickly compare funding options, a broker probably isn’t worth the extra cost.
Carefully assess each interest rate offer you receive. Instead of being based on your credit score like a personal loan would be, lawsuit funding rates depend on the details of your case. You’ll be charged a higher rate if there seems to be a lower chance of winning. That’s why your pre-settlement funding company has a discussion with your attorney; this helps them evaluate the risk level and adjust your interest rate accordingly.
Simple vs. compounding interest
Another factor that impacts the quality of your interest rate is whether it compounds. Compounding interest means that interest is applied to your total balance every time it’s charged — not just the original amount of the advance. Any previously charged interest also counts towards the total balance charged in the future.
Simple interest, on the other hand, only charges interest on the original advance amount. That means you have the potential to save interest, assuming the rate is comparable to a compounding interest rate.
Interest isn’t the only cost associated with pre-settlement funding. Check each company for other fees, such as an application or processing fee. Some banks also charge delivery fees for wire transfers.
Any extra costs should be clearly outlined in your cash advance agreement. If not, follow up and ask what else you may be expected to pay. If the company’s answers are vague, it could be a signal to look elsewhere.
As non-recourse financing, you aren’t required to pay back the pre-settlement funding company if you do not reach a settlement in your case. If you do win, you typically repay the advance (+ fees) the full amount once your lawyer receives your settlement check. Some may provide more flexible options, but this is rarely the case.
Non-recourse loan: No repayment is required if you lose your case.
Pros and Cons of Pre-settlement Funding
Wondering how to decide if pre-settlement funding is right for you? We’ll help you weigh the pros and cons so you can confidently make the right choice.
- Address immediate financial needs: You can receive cash quickly to pay for medical bills related to your claim and other living expenses, especially if your ability to work has been jeopardized.
- Wait for a better settlement: Pre-settlement funding gives your attorney more time to negotiate without you feeling financially pressured to settle for less than you may otherwise get.
- Non-recourse funding: If you don’t win your case, you don’t have to repay the cash advance. It’s up to the funding company to evaluate the risk level of your case and offer appropriate terms based on their findings.
- Skip the credit check: Unlike other types of funding, pre-settlement cash advances do not require a credit check or employment check. Approval is entirely dependent on the details of your lawsuit, not your income, credit history, or other personal details.
- High-cost financing: Both interest and fees can be high when you get a cash advance on your settlement funds. Those fees chip away at the amount you’ll receive once your case is settled.
- Case restrictions: Personal injury is one of the most common types of cases for lawsuit funding. But there are many types of legal cases. Find a lawsuit loan company that has experience with your needs.
Pre-settlement Funding Company Checklist
Focus on companies that have the following qualities:
- Direct funder: You’ll typically take advantage of the lowest overall costs when you choose a direct funder over a broker (which typically tacks on an extra fee).
- Available in your state: Lawsuit loan companies need specific licenses to operate in each state. Check availability before you even get started; otherwise, you’ll end up wasting time researching options that are not relevant to you.
- Good communication: A funding company should ask for your lawyer’s information and have an in-depth conversation about your case. You’ll get a sense of this when you first start corresponding with the company. If they’re slow to get back to you, this could indicate future issues throughout the entire process.
- Simple interest: Don’t accrue more interest than necessary. Look for legal funding companies that charge a simple interest rate. That means it doesn’t compound on previously accrued interest. You only ever pay interest on the cash advance.
- Low interest rate: Also compare interest rates. A lower interest rate means you’ll pay less over time. Another factor is how frequently it’s charged. It’s usually incrementally every few months; more frequent interest charges mean you’ll pay more.
- Low or no upfront fees: Try to avoid lawsuit funding companies that come with application or processing fees. This dilutes how much you get once you eventually reach a settlement.
- Clear terms and conditions: If you look at the cash advance offer and don’t understand how it works, you may want to move on. The terms should be easy to understand so you know exactly what to expect with how the repayment process works.
- Low-key sales approach: Avoid companies that pressure you into making a decision. Ultimately, it’s a big decision to make and it’s ok to take time to evaluate multiple offers and choose the best path forward.
- Short funding: Once you’re approved, the funding company should be able to transfer funds for you in a matter of days (if not less). Make sure you understand the timeline for getting the money delivered. After all, you probably need the money to cover medical or living expenses — make sure you’re getting it in a timely manner.
- Positive online reputation: Do some background checks on any company you’re thinking about working with. Check customer reviews online to see how other people’s experiences have gone. Also check the Better Business Bureau to see if there are any outstanding complaints. Your lawyer’s office may also have recommendations of companies they have worked with in the past.
Tip: Don’t borrow more money than you need so you can preserve as much of your final settlement as possible.
Is an attorney required for lawsuit funding?
Yes, lawsuit funding companies usually require that you engage a lawyer so they can get an accurate sense of your case and likely settlement.
How can I spend the money?
There are no restrictions on how to spend your pre-settlement advance. However, most people use the money to pay medical bills, mortgage or living expenses.
Is my case eligible for pre-settlement funding?
Most lawsuit loan companies work with plaintiffs in the following types of lawsuits: personal injury, medical malpractice, wrongful death, premise liability, product liability, and employment discrimination.
What if I lose my case?
Repayment is not required if you lose your case.