Historically, lawsuit settlement funding has gone unregulated. In some states, lawmakers are aiming to increase oversight and restrictions on the industry. But for now, many lawsuit funding companies can set rates as they see fit. Are you looking for an affordable lawsuit cash advance? We’ll look at how post-settlement funding rates may be calculated by your lender.
How Post-Settlement Funding Works
A post-settlement cash advance may cost less than a pre-settlement loan. The funding company is approving a plaintiff whose case has already been settled. Therefore, it’s taking on less risk. You’re going to receive the proceeds of the settlement; you just don’t know when. The non-recourse advance you were approved for will be paid out of this amount.
In other circumstances, the lender may issue a cash advance whether a case may win or lose. Since the company isn’t paid back if a case loses or the payout is less than you owe, it’s taking on substantial risk. High-interest rates and fees help recoup the losses from cases that don’t win. The company may also factor this into rates on post-settlement advances.
Factors Used to Calculate Post-Settlement Funding Rates
Post-settlement funding can help pay the rent or mortgage. It can also cover travel expenses, groceries, and legal fees. But with interest and fees added, the amount taken out of your settlement proceeds can be much more than you initially accepted. The funding company’s rates are determined using factors such as:
- Simple Interest: If the firm calculates simple interest, the amount you borrow is multiplied by the annual interest rate. The result is multiplied by the time until it is repaid. So, if you borrow $25,000 at a monthly rate of 4% and the case settles in 12 months, the calculation will look like this: $25,000 x .04 x 12 = $12,000. Therefore, $37,000 will be deducted from your settlement proceeds when they become available.
- Compound Interest: If a lawsuit funding company charges compound interest, you’ll owe even more because interest is paid on the principal, or initial cash advance, and accumulated interest over those 12 months. You’re essentially paying interest on your interest. If the lender compounds interest monthly, the interest accrues exponentially. Depending on the company, the rate can range up to 60% annually.
- Multiple-Method: The amount you pay in interest increases the longer it takes to repay a loan. Some companies don’t quote an interest rate. Instead, they set a rule that, for example, you’ll owe 1.5x what you originally borrowed after 6 months or 2.0x or 3.0x the initial amount regardless of when the advance is repaid.
- One-Time Fees: A lender may not charge fees upfront but include them when assessing interest. You’ll pay interest on processing, application, underwriting, origination, e-signature, and other fees. Therefore, you pay interest on funds you never received despite the company promising a lower rate.
- Recurring Fees: The funding company may cover specific costs by adding fees to your balance. For example, it may add archiving or document management fees on a semi-annual or annual basis (to maintain your file). You’re charged for every individual transaction. Case servicing or case management fees are often handled in a similar manner.
Whether the company specifies it charges recurring fees, ask for them to be waived. Also, ask about a cap on the repayment amount. Setting a maximum will be helpful if your case takes a long time to settle. For example, a 2.0x cap on repayment means you won’t pay back more than twice the amount you borrowed.
Tips on Shopping Around for the Best Post-Settlement Funding Rates
When comparing lawsuit funding companies, consider the following to find the most affordable options:
- The interest rate the company charges
- Whether the interest rate is simple or compound
- If interest is compounded daily, weekly, monthly, etc.
- What the fees are (consider asking for a list in writing)
- Confirmation the the advance/fees won’t be due until settlement funds are received
Apply for Post-Settlement Funding with Fund Capital America
If you’ve reached a settlement and are waiting to receive compensation, post-settlement funding can relieve the financial pressure. We provide non-recourse cash advances on auto accidents, personal injury, product liability, and other lawsuits with no hidden fees or upfront charges. Apply now by filling out our simple online form. If you have questions about legal funding or post-settlement funding rates, call (855) 870-2274 or contact us online now.