The Overall Cost of a Pre-Settlement Lawsuit Loan

The Overall Cost of a Pre-Settlement Lawsuit Loan
The Overall Cost of a Pre-Settlement Lawsuit Loan

A pre-settlement lawsuit loan is greatly beneficial because it can help you meet your financial needs while you are waiting for your settlement proceeds.  They are viewed as a risk-free option for some but very risky for others.  This is where the fees differentiate what you might think of the risk involved when applying for pre-settlement funding.

Pre-Settlement Financing Loan for a Pending Lawsuit

If your personal injury case has been filed in court, you are eligible to apply for pre-settlement funding from a lending company.  

A lawsuit is said to be pending from the day it has been initiated until a final judgment has been issued by a court.  The word ‘pending’ refers to the time or period while the appeal is in progress.  

During this period, if you are a victim, and you are waiting for your case to settle, you may be overwhelmed with mounting bills and insufficient income to cover your medical and daily living expenses, including a mortgage.

Factors that Influence the Cost of an Advance Settlement Funding

One of the best features of an advance settlement funding is that there is no risk that you have to pay back the money if you don’t win your case.  This is because you won’t have settlement proceeds to pay back your loan or the funding you received.

However, if you win the case, you are going to have to pay back the original loan amount plus a potentially big amount of interest that has compounded through the months of your pending lawsuit before it settled.  This, among other factors, will impact the cost of your advance settlement funding.  The other factors include:

  • Duration of your lawsuit

A fairly simple personal injury case may take a year or two to settle but more complex cases with a larger amount of money at stake may take longer.  This is the usual scenario for those who are seeking a pre-settlement lawsuit loan.

One example is of an attorney editor who was involved in two devastating car accidents and the cases lasted for four and seven years, respectively.

There is really no way to accurately predict the cost of a lawsuit loan since every case is different and you can’t know upfront how long your case will take.  You can estimate the costs when you talk about your case with your attorney and the lawsuit funding company.

  • Interest costs

Interest costs of pre-settlement lawsuit loans can be tricky.  But the general rule that interest accumulates the longer you have a loan remains true with a lawsuit loan.

What’s important for you to know is if the lawsuit funding company has a compounding interest and how often it is compounded.  Compounding interest is simply paying interest on interest.  Hence, the less your lawsuit loan compounds interest, the lesser you will be charged.

The compounding interest looks nasty for lawsuits that drag on over a longer period of time.  If this happens, the amount of your final settlement funding will be greatly reduced after you have paid your lender.

With a simple interest rate, which is never compounded, you will pay a flat interest rate throughout the duration of the case.  Ideally, you should find a lawsuit lending company that uses simple interest on a lawsuit loan because it is substantially less costly in the long run.

  • Upfront cost and other pre-settlement funding rates

Pay attention to extra fees that a lawsuit lending company may sneak into your agreement.  They may seem small but will accumulate over the course of your loan and can inflate the overall payback.  Make sure these pre-settlement funding rates are minimal.

Other fees will include:

  • Processing fees
  • Application fees
  • Underwriting fees
  • Review fees

Overall Lawsuit Loan Cost from Lawsuit Settlement Funding Companies

A lot of factors will determine the overall cost of a pre-settlement lawsuit loan.  Before you sign an agreement with a lawsuit settlement funding company, make sure you know the pre-settlement funding rates because it is impossible to exactly predict how long it will take for your case to settle.  Get the most from your pre-settlement lawsuit loan by doing your homework.