How Does a Settlement Loan Work?

A settlement loan sounds like an easy way to manage financial difficulties when waiting out a personal injury lawsuit. An accident may have left you injured and out of work, but the bills are still flowing in. A settlement loan is often approved for car accidents, slip and falls, workplace accidents, medical malpractice, or product liability cases. If you expect to settle a claim or win a judgment in a lawsuit, here is how the process works:

Applying for Settlement Funding

First, your personal injury lawsuit must already be filed, so we’ll assume you have an attorney who is willing to work with a lender. Approval is important since the lawyer will need to share pertinent details about your case. This is how the application process is typically carried out:

  • Apply for the loan with a lawsuit funding company; this can often be completed on their website.
  • The company then evaluates the merit of your case and your chances of winning the lawsuit.
  • It then determines how much you could negotiate in a settlement or win in a judgment.
  • The lender offers you a sum of money, which is typically available immediately.
  • You agree to pay back the principal and any fees out of the proceeds of your settlement.

With pre-settlement funding, you usually don’t have to make any payments prior to your case settling. Payments are taken out once a settlement is approved.

You Don’t Pay If You Don’t Win

Litigation funding comes with the advantage of, if your case doesn’t win, you won’t owe back the principal of the loan. The downside is high-interest rates and fees since the lender is taking on significant risk. Attorney’s fees and litigation expenses will be deducted from the settlement amount first, and then the lender will be repaid.

Interest rates can be quite high (expect to pay at least a 20% interest rate). You’ll also need to consider the funding fee, which can run from 2% to 4% of your loan principal per month. In some cases, that can yield an annual percentage rate of 60%+. That’s a significant amount considering some lawsuits take years to resolve. However, if your case settles for less than you anticipated, the amount you pay will be capped; you won’t be required to pay more than you receive.

How Can I Use My Settlement Loan?

There’s no limitation or law that restricts how you use the money. You can use it for financing litigation but you probably have other bills to pay too. Being injured in an accident or due to medical malpractice can easily cause you to fall behind on bills, but a settlement advance means the cash is available to cover them. It can cover rent, mortgage, or car payments as well as food and other living expenses.

Does My Credit Influence Approval Decisions?

Your credit is typically not a factor. Even if you have bad credit, the lender can still make an offer, and may not even run a credit check. The loan is generally backed by the likelihood of your case succeeding and how large the expected settlement may potentially be; this is where settlement funding companies see their return on investment.

Apply Today with FCA Legal Funding

We provide settlement loans for a wide range of cases. Options include our post-settlement funding, cash advance refinance, and settlement acceleration programs. No upfront or out-of-pocket payments are required and we offer same-day funding. Apply now for funding or learn more about our process by calling 310-424-5176 today.