Important Advice About Pre-Settlement Funding

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Practice Areas: Personal Injury

Facing down a lawsuit can be an intimidating situation. Not only are you dealing with the stress of the potential outcome but a personal injury lawsuit can also create a significant financial setback for your family. Even if you have an excellent case and lawyer, you may feel compelled to settle early and for less money because you are running low on funds.

Pre-settlement lawsuit funding (also known as litigation financing, legal financing, plaintiff financing, settlement funding, and third-party funding) is a dependable way to receive the money you need to overcome a defendant’s financial advantage. Before you commit to pre-settlement funding, it's essential to be aware of the advantages and disadvantages of acquiring financing for your lawsuit.

What are the advantages of a Pre-Settlement funding?

Pre-settlement funding is commonly recommended during personal injury cases. Often, plaintiffs stand to gain significant settlements. However, the defendants may drag a case out in hopes that the plaintiff will settle for less because of financial restraints.

Plaintiff financing allows you to gain access to crucial funding quickly and easily. It is different from a typical loan because you are only required to pay back the money advance if you receive a lawsuit settlement. Having financial support during your case provides immense peace of mind and allows you to pay your bills before negotiating a settlement. Also, it eliminates feeling pressured into an early agreement that doesn’t fully reimburse you for your personal injury.

Since pre-settlement funding is technically not a loan, there is no requirement for credit checks. Whether you have bad or no credit, you can still be approved for plaintiff financing.

What are the disadvantages of Pre-Settlement Funding?

As beneficial as pre-settlement financing is, there are some drawbacks. Just like with any other loan, there is an interest rate to consider your advance. The average lawsuit funding interest rate runs at about 36% per year. Plaintiffs also need to be careful when considering lawsuit funding that advertises meager initial interest rates. Even if you get a low-interest rate initially, these rates typically compound, resulting in a much higher rate down the road. If your lawsuit takes longer than expected, these compound rates can drastically cut into your settlement.

It is vitally important that you read the fine print before acquiring a pre-settlement funding. While plaintiff financing can help give you the financial wiggle room you need before you get receive your settlement, some funding companies are not as upfront about the specifications of their lending. For example, some lenders claim to be funding providers for lawsuit loans. However, at the end of your case, they still require that you pay back the money advance whether you have won your case or not. This is not considered pre-settlement financing but is a personal loan and is not technically legal funding. Legal funding is only repaid upon unsuccessful litigation of your case.

Finally, your case must be a sure win in the eyes of your lender to be qualified for pre-settlement funding. If the lender feels that you do not have a strong enough case, then you can be denied financing.

Final Thoughts

The objective of taking out pre-settlement funding is to provide you and your personal injury attorney with some breathing room so you can obtain a fair settlement. Financial worries from medical bills and living expenses often make plaintiffs feel pressured into an early settlement that is not in their best interest. While lawsuit funding can be the ideal answer for most plaintiffs, they should consider the advantages and disadvantages before moving forward with the financing.

To summarize, here are a few tips for pursuing pre-settlement funding:

- Consult with your personal injury lawyer to see if they recommend any pre-settlement funding companies.

- Read online reviews to see what other plaintiffs have experienced from the lender.

- Make sure your lender follows the American Legal Finance Association’s guidelines for pre-settlement funding. Make sure your lawsuit qualifies for funding of your case.

- Read the fine print to ensure it is a legitimate pre-settlement funding agreement.

- Factor in interest rates to the cost of your overall settlement.

- Remember, contacting a lender for more information does not mean you must sign up or commit to pre-settlement funding if you decide it isn’t in your best interest.

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