Is Pre-Settlement Funding Right For You? Questions To Ask Yourself First 

Are you considering pre-settlement funding to help manage your finances during a legal battle? It’s a decision many plaintiffs face, often due to financial pressures like medical bills or living expenses piling up while waiting for a settlement. Pre-settlement funding can be a lifeline when your financial world feels shaky. But what is it and is it the best choice for you?

What is Pre-Settlement Funding and How Does it Work?

Pre-settlement funding, also known as a lawsuit loan, gives quick financial support to plaintiffs in personal injury cases while they wait for their settlement. The best part? It’s non-recourse, so you only pay it back if you win your case. There are no credit checks, or no income verification either.

Here’s how it works:

• Application. You apply for funding through a legal funding company, which evaluates your case and the likelihood of a favorable settlement.
• Approval. If approved, you’ll get a non-recourse loan agreement that you and your attorney need to sign.
• Funds. Once the contract is complete, you receive the cash advance to help with urgent expenses like medical bills, rent, or everyday living costs.

However, before diving into the decision-making process, it’s important to carefully consider whether a lawsuit settlement loan is the right choice for your situation.

Questions to Ask Yourself Before Obtaining Pre-Settlement Funding

To decide if pre-settlement legal funding is an option worth considering, you might want to ask yourself these questions:

Do Really Need Financial Assistance Right Now?

Think about your current financial situation. Are there specific expenses that can’t wait until your settlement arrives? Maybe it’s those never-ending medical bills, rent, mortgage payments, utilities, or even putting food on the table. Ask yourself: What is creating financial hardship for you? Is this critical enough to warrant funding your case?

Take a pen and paper, write down your most urgent costs, the consequences of not taking care of them, and factor them into your decision.

What Other Financial Options Do I Have?

Before deciding on pre-settlement funding, it’s a good idea to explore other ways to handle your finances. Can friends or family lend a hand? Or maybe you have savings or investments you can dip into temporarily to get by. It may also be worth seeing if you can negotiate payment plans with your creditors to ease your monthly expenses.

Exploring all these options can help you decide if a pre-settlement loan is a must-have lifeline or if there are other ways to keep things afloat while you wait for your settlement.

Does My Attorney Support This Financial Decision?

If you’re running out of alternatives and pre-settlement legal funding seems like the next step, now’s a great time to involve your attorney. This isn’t just a formality—it’s how lenders go about approving applications. Without an attorney, your lawsuit funding application will be denied, which can be a real waste of your time and effort.

So, why is this support so important? Simply put: your lawyer repays the lender from your settlement if you win. Plus, a good relationship can even help negotiate better rates, which means more settlement money in your pocket.

Before applying, speak with your attorney to confirm he or she is on board with your decision. If not, it might be time to seek out an attorney who can better facilitate the process for you.

How Much Money Should I Borrow?

Figuring out how much money to borrow from a pre-settlement funding company can feel tricky, but it really comes down to knowing what you need. Start by taking a good look at your current expenses. What bills and costs do you need help with right now? Consider things like rent, utilities, medical bills, and groceries. Some providers offer legal funding for as little as $500 or as much as $2,000,000.

However, be careful with companies offering more than 10% of your settlement value. It’ll seem like a smart idea to borrow extra “just in case,” but remember that bigger loans mean more interest and fees, which could take a big chunk out of your settlement later.

What Are the Interest Rates and Fees?

Pre-settlement loans often come with higher costs than traditional loans to compensate for the potential loss if the case is unsuccessful. Depending on your lender, these costs can be between 36% and 60% annually, and in some cases, more.

To avoid any unexpected hiccups, make sure you know what type of rate you are getting. Are these rates simple, compounding, or tiered? Compound interest can make your loan grow faster over time compared to simple interest. On the other hand, tiered interest gives lower rates on the first amount you borrow. But watch out—it can triple once you hit certain thresholds or if your case doesn’t settle within a year.

Before you decide, take a moment to compare the total annual cost (APR) of your pre-settlement funding offer with the typical APR. Your APR shouldn’t exceed 41%. How does your offer stack up?

What Is the Repayment Structure?

As mentioned before, pre-settlement advances are non-recourse, meaning you only pay if you win your case. That means that there are no monthly payments to worry about. However, the specifics of the repayment can vary greatly depending on the lender’s terms of the loan agreement. These terms, including interest rates and fees, will determine the portion of your settlement you’ll actually keep.

To minimize the repayment, look for loans with cost caps, which limit the duration you’ll be charged, even if your lawsuit extends beyond that time. For example, a three-year cap means you’ll only pay interest for three years, no matter how long your lawsuit drags on. Also, be sure to check when repayment is due and whether there are penalties for delays after your attorney receives the settlement.

That said, this raises an important consideration: How will the repayment cut into your settlement funds? Are you okay with what you’ll have left? Remember, choosing the wrong terms could leave you with less money than you anticipated, which is something you definitely want to avoid.

Is My Case Strong Enough To Win?

Because legal funding is non-recourse in nature, having a strong case is another essential element for obtaining funding. Lenders want to minimize their risks, so they look at how likely you are to win your litigation to decide if funding is a good idea.

If your case has merits, your lender will be more likely to approve an advance with favorable terms. On the flip side, if your case lacks merit or is new, funding companies might see it as high-risk, which could result in loan rejections or much higher interest rates.

Having an open dialogue with your attorney can give you a better understanding of where your case stands. This way, you can better see if pursuing legal funding makes financial sense for you.

Is the Funding Provider Reputable and Transparent?

Did you know that, while rare, a predatory lender can hit you with interest rates as high as 100% a year? Yes, your lawsuit is already stressful, and the last thing you need are costs that add to that stress. Knowing what to look for in a reputable advance provider can make all the difference.

Here’s how you can vet potential pre-settlement companies:

1. Research Their Background. Start with a simple online search into the settlement lender’s reputation. Are they reputable and trustworthy? What do reviews say about their services? Reliable companies will have a history of satisfied customers.
2. Request a Fee Schedule. Ask the lender to provide a detailed breakdown of all fees and interest rates, from the lowest to the highest. A transparent lender will have no problem explaining their cost structure, even if it’s an approximate.
3. Review The Pre-Settlement Funding Agreement. Before signing anything, go through the contract thoroughly. Every term should be clear and there shouldn’t be any hidden clauses that could surprise you later.

Think of this process like shopping for a major purchase, like a car or home. You wouldn’t buy a car by simply believing what a salesman says, right? Applying the same diligence here will help you find a pre-settlement advance that respects and understands your needs.

Check out several pre-settlement funding companies, too, like Baker Street Funding or Fast Cash. Tribeca and Nova Legal Funding are also reputable firms.

How Does the Loan Affect My Negotiating Power?

Juggling legal and financial stress isn’t easy, and this pressure can tempt you to settle quickly for less. But before jumping in, consider this: What exactly is pressuring you to settle quickly? And, is this worth compromising on your settlement?

Negotiating a reasonable settlement requires time and patience. You may have conflicting feelings about borrowing money against your settlement, and that’s understandable. On one hand, pre-settlement funding might just be a small price to pay if you have enough money to hold out for a fair and much larger offer. For instance, a $20,000 advance might make sense if your case is valued at $500,000.

On the other hand, if you expect to settle for a lower amount, such as $100,000, a $20,000 pre-settlement loan + costs might not be worth it. You can also talk with your personal injury attorney to decide if having this financial tool will truly strengthen your negotiating power. 

How Long Is My Case Expected to Take?

Legal cases are unpredictable, but knowing the rough timeline of your settlement helps you plan your finances better and save money in the long run. For example, if your case could take 2 years to settle, you might consider borrowing smaller amounts as needed instead of a large sum upfront. Some companies let you borrow monthly, so you don’t have to take out more than necessary.

It’s worth remembering: legal funding comes with interest, and the longer your case takes to resolve, the more you’ll pay in loan fees—even with a rate cap. So, why not borrow only what you really need to get through? It could help you find some financial peace.

The Takeaway

Choosing pre-settlement funding is an important financial choice that requires some thought. Key aspects to consider: interest rates, fees, and repayment terms. Don’t forget to weigh how the loan might positively affect your ability to negotiate and whether your case is valuable enough to make this option worthwhile.

In the end, it all comes down to your personal situation, the strength of your case, and how comfortable you feel with the terms. Take a second to think through these questions, and you’ll be better equipped to figure out if pre-settlement funding is the way to go for your financial needs.

Looking to make your journey smoother? Consider Baker Street Funding. Empathy for your situation drives us to provide transparent terms, low non-compounding rates, and caps that protect your settlement. With Baker Street Legal Funding, you’re not just making it through—you’re making it count. Apply for a lawsuit cash advance today.