Is Pre-Settlement Funding Considered A Loan?

Reading Time: 5 minutes
Is pre-settlement funding a loan

Pre-settlement funding, also known as a lawsuit loan, is not a loan. These advances are non-recourse, meaning it is solely based on the merit and successful outcome of your case. If you do not win or settle your claim favorably, you are not under any obligation to repay the funds.

Here’s the scoop on pre-settlement legal funding, its key differences from other types of loans, and how you can get one.

What are the key differences between pre-settlement funding and other types of loans?

The main difference between these types of borrowing is that pre-settlement funding is non-recourse, whereas other types of loans are recourse based. What this means is that traditional loans will use a borrower’s collateral for the loan approval, whereas pre-settlement legal funding won’t have any collateral.

You do not make monthly payments or any repayment until the case wins or settles.

Pre-settlement legal funding companies are only interested in the strength and value of your case, not your job or your ability to repay a set amount of money on a monthly basis. 

Other types of loans, also known as traditional financing from banking corporations, credit unions, and other financial institutions, are recourse-based transactions that typically have structured monthly repayments of principal and interest.

Pre-settlement legal funding is not dependent upon credit, job history, or financial background.

Lawsuit loan companies are providing you with money based on your expected compensation and not your personal financial history. They do not take an interest in anything other than the outcome of your claim, and the repayment typically comes directly from your attorney.

For example, a bank loan, a personal loan, or even an advance from your credit card may get you into financial trouble with them if you fall into hard times. That’s because they base their loans solely upon their judgment of someone’s ability to repay the debt in time.

You get a non-recourse advance, so there is no repayment or loss of assets if you lose.

With pre-settlement funding, you do not give the lender any collateral or rights if you can’t pay them back because you lost your case. The lender does not have the ability to seize your assets, whether they be monetary like a bank account or a paycheck or, like a mortgage or a car loan, a loan tied to a specific physical asset, if you don’t get compensated. You will not have someone reaching into your bank account or other assets to recoup the money they released to you.

Pre-settlement loan companies do not report to any credit agency or classify the loan as income.

Traditional loans, no matter their intended purposes, includes protections for the lender in the event a borrower cannot pay the money back. These protections can include things like seizing your house in the event you default (i.e., do not pay) on a mortgage or repossessing your car if you do not pay back your car loan as agreed. They can also reach into your bank account or seize a portion of your paycheck if you default on paying them back. 

With a lawsuit loan, you do not risk losing your house, having your car repossessed, your credit trashed, or having a bank account or paycheck garnished if you do not recover compensation and default on paying them back.

The process is quick, simple, and straightforward.

Most lawsuit loan companies have very sophisticated ways of judging the strength of your lawsuit, typically in a matter of a business day or two. They are interested in your lawsuit, and only your lawsuit since that is where they will get their money. You can typically get qualified in minutes after you apply by answering a few questions about your case, your attorney, and your injuries.

Unlike other kinds of loans that take weeks to process, getting your pending case funded only takes 1-2 business days.

You get much higher funding amounts.

With a lawsuit loan, you can receive up to 20% of what your case is worth. For example, if your case is worth $500,000, you can receive up to $100,000 in funding. However, with conventional loans, your approval amounts are not nearly as high.

Lawsuit loans have a higher interest rate than traditional financing, so it’s important to take one out only when you’ve already exhausted other financial options.

Lawsuit loan companies bear the risk of non-payment if you don’t get a settlement or award from your case. This is why the rates are higher than other types of loans.

Traditional loans are viewed as less risky by lenders, and they have low-interest rates, much lower than along you’d get from your pending case.

Applying for pre-settlement funding.

Pre-settlement legal funding is not much more difficult to apply for than a regular loan.

Depending on the lender and how fast your attorney responds when asked to submit the case file for evaluation, you can either get funding the same day or 24 hours after your attorney fully participates in sending the requested information.

In determining your approval, your most critical responsibility is to ensure your attorney communicates with the funding company as requested. If your lawyer does not consent or help you through the funding process, the lender will reject your application.

Paying back the pre-settlement funds.

Pre-settlement funding is meant to be paid back at the time your settlement check or jury verdict award arrives. Once your attorney receives your proceeds paid in full in their trust account, they will pay back the funds you borrowed in a single lump sum with a check to the funding provider.

Remember, the lender can only get paid the cash they gave you if you prevail in your claim; otherwise, whomever you borrowed from takes the loss. In this case, the lender is no longer entitled to receive repayment or recover anything, and you both walk away. 

The takeaway.

Pre-settlement legal funding is exactly that: a non-recourse monetary advance tied to your future compensation package and not a loan in the traditional sense.

Personal injury cases (where someone is responsible for your injury) such as car accidentsslip and falls are the types of cases that funding companies consider mostly for funding.

Other cases that are deemed eligible include wrongful imprisonment and employment discrimination.

The primary criteria for whether you will be approved and how much you may receive with pre-settlement legal funding are entirely focused on your claim’s ability to win rather than on you or your assets. 

People involved in accident claims often use this type of funding as a quick fix to cover living expenses and medical bills while waiting for their case to settle or resolve. If you find yourself in this situation, Baker Street Funding offers advances to help you cover your financial commitments with non-compounding rates and a rate cap to protect you from predatory charges if your case takes over three years to resolve. You can apply online and get qualified quickly.

Best of all, since pre-settlement legal funding is not a loan, you don’t need to provide a credit score or income proof and may receive the funds within 24 hours.

If you need cash fast, but you want to get funding from a reputable company without risking out-of-control interest rates or conventional loan requirements, Baker Street Funding might be right for you. Apply today.

At Baker Street Funding, we give you the inside scoop on pre-settlement funding by covering a variety of ... financing and legal topics to help you made the best financial decision for you and for your case. Our experts break down complex ideas in a way that's easy to understand so you can stay informed on current trends as well as tips and fact checked information by the CEO and founder, Daniel Digiaimo. Furthermore, Despite its name, consumer legal funding is not a loan. If you don't win your case, no payment needs to be made back. To avoid confusion and simplify matters on, we'll use the word "loan" throughout this article.

See some of our settlement funding products

Learn more about pre-settlement funding

Select a legal funding service to get started. 

Attorney Requests

Lawsuit Loans

Litigation Funding

Personal Injury Loans

Settled Case Loans

Surgery Funding

Or just call us at 888.711.3599 to apply.