What’s often referred to as a pre-settlement loan isn’t like a traditional loan. You don’t pay it back unless you win, and you pay nothing out of pocket. The cash advance is paid back out of the proceeds of your settlement. But like a loan, pre-settlement funding companies do charge interest and an origination fee. You’ll be informed of the interest rate once your application is approved.
HOW ARE PRE-SETTLEMENT LOAN INTEREST RATES CALCULATED?
Every cash advance presents some level of risk to the funding company. If you have a solid lawsuit with a strong claim, and the defendant’s insurance limits are reasonable, you may qualify for lower rates. But if you have a new case and/or an issue with your claim, the interest rate may be higher. That’s because the risk of losing, and the lender not being paid back, is greater.
The variables that go into calculating an interest rate on a pre-settlement advance include:
- Amount of Funding: The more funding you receive, the higher the risk to the company. Therefore, the size of the requested amount is a major factor in determining the interest rate. For example, if you’re loan is for more than $25,000, the rate will probably be higher than if it were a significantly lesser amount. But regardless of monetary amounts, the rate will be lower if you’ve already reached a settlement.
- Length of Your Case: Funding companies weigh heavily on the expected length of a lawsuit. The longer it takes to reach a settlement, the higher the cost to the lender, and the greater the interest rate they will charge.
- Strength of Your Case: Interest rates are calculated in part based on how strong a lawsuit you have. For example, if a plaintiff has a personal injury lawsuit but is dealing with injuries sustained prior to the accident, liability concerns can result in losing the suit. Therefore, it’s possible they could default on the loan. The stronger the lawsuit, the lower the rate.
Paying Interest Vs. Losing A Case
We encounter many clients who ask whether they’ll still have to pay interest on their loan if they lose their lawsuit. You won’t owe us anything if your case loses. Only if it ends in a settlement or compensatory award by the court are we paid. We won’t expect you to pay any fees associated with the loan either.
WHAT OTHER FEES WILL I BE CHARGED?
You will be charged an origination fee. However, it is not due until you are compensated. Meanwhile, you’ll receive the funds you need to cover bills, medical costs, etc. The principal, interest, and fees, will be paid for out of your settlement funds.
HOW DO I FIND THE BEST INTEREST RATES/LAWSUIT LENDERS?
You’ve probably seen many advertisements for lawsuit funding companies on TV, the internet, and in the mail. However, your best resources for finding a reputable lender are your attorney, who is probably familiar with good funding companies and knows how to negotiate with them, and the American Legal Finance Association (ALFA). Its members must abide by numerous best practices; although trade associations promote the interest of their members, they’re a good place to look for reputable organizations.
HOW DO I FIND THE BEST PRE-SETTLEMENT LOAN TERMS?
If you’re shopping around for the best interest rates and terms, consider the following questions:
- What are your funding fees? (A fancy term for interest rates).
- Do you charge a fee to evaluate the case or apply for funding?
- How often is interest compounded? (Some lenders compound interest monthly or more frequently).
- Will I be required to pay more than my settlement amount?
- Is the lender asking for a signature before approving an application or providing information?
- Does the lender seem hesitant to answer my questions or disclose potential loan terms?
Apply For Your Pre-Settlement Loan Today
At Fund Capital America, we fund all types of personal injury cases. We charge no out-of-pocket costs and if you don’t win, we don’t require repayment. Our online application process is simple, and you can receive funding on the same day we approve your request. It’s a completely paperless process. To learn more about how legal funding works and have your questions answered by our friendly staff, call (855) 870-2274.
