On Average, What Is The Interest Rate On A Settlement Loan?

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What Is The Interest Rate On A Settlement Loan

When you take out a settlement loan, you have to pay an interest rate. Although interest rates on lawsuit loans can range widely from lender to lender, it’s in your best interest to get the lowest rate possible for your loan and wisely explore your pre-settlement funding options.

At this point, you might be wondering, “What is the interest on a settlement loan?” Or at least, “What is a good rate?”

Generally, the best pre-settlement loan interest rates are much ‘lower’ than the average lawsuit funding company, which is approximately 60% annually. The strength, length, and complexity of your lawsuit and other factors all dictate what rate you can expect to receive, but you should never settle for a yearly interest rate of over 41% or a monthly rate of over 3.4% per month, non-compounding.

Read on to learn more about the average pre-settlement lawsuit loan interest rates and costs, what to watch out for, what the best funding companies provide, and the rate difference between pre-settlement and post-settlement funding.

How do settlement loans work?

A pre-settlement loan gives you an advance from your lawsuit in exchange for a percentage of the potential settlement or verdict you receive in the future. These types of loans are convenient because they are non-recourse, meaning you only pay back the funds if the case settles favorably. 

To find out if you can receive a pre-settlement loan, you first have to apply directly online. Based on the information submitted, the lawsuit lender will quickly contact you to determine whether or not you qualify for the advance. Your attorney’s consent is one of the most critical factors in this process, and only by providing your case file will the lender move forward with the evaluation of your claim. Once your attorney submits the required documentation, Baker Street Funding will make a decision 24 – 48 hours later. If approved, you and your lawyer will get a loan agreement to sign specifying your interest rates.

Once completed, you will get your funds. The funding time takes approximately 2 to 24 hours from when we receive the signed contract.

What is the average interest rate on a pre-settlement loan?

Lenders typically set their own terms regarding rates and underwriting criteria on the risks involved with the case. The best funding companies want to offer an interest rate low enough to win your business while earning them and their investors a profit at the same time. 

According to Baker Street Funding’s 2022 legal funding refinancing, the average interest cost of a pre-settlement cash advance is around 60% a year, and the best rates range from 24% a year for attorneys up to 41% a year for plaintiffs. This translates into rates starting at 2% per month up to 3.4%.

As mentioned above, pre-settlement funding is a type of non-recourse financing that does not need to be repaid if you lose your legal case. This means that the funding company will not seize your assets if you default on the loan in the event that you don’t receive monetary compensation at the end of your case. Furthermore, most lawsuit loan companies do not consider credit scores, income, or assets when evaluating loan eligibility. However, the interest rates on pre-settlement funding are typically higher than those of traditional banks or credit unions—but lower than payday and title loans.

What should I be aware of when considering a pre-settlement funding interest rate?

You may have seen lenders who advertise rates starting at 1% up to 3% per month. However, when you check the interest rate on the funding contract, you may find that what they are charging you is much higher than advertised.

When considering pre-settlement funding offers, it’s important to be aware that interest rates can vary widely depending on the lender and the specifics of your case. While some funding companies may advertise interest rates as low as 1-3%, it’s really important that you carefully review the terms of any loan offer before signing on the dotted line. In particular, whether the interest rate is simple or compounding.

Simple interest means that you’ll only pay interest on the original amount of the funding, while compound interest means that you’ll be charged interest on both the original amount and any accumulated interest. This can add up quickly, potentially resulting in much higher fees than you originally anticipated. If a settlement loan company is advertising rates significantly lower than what other lenders are offering, don’t be afraid to ask questions and carefully review the terms of the agreement to ensure that you fully understand the costs involved. In short, don’t take a funding company’s advertised interest rates at face value without doing your due diligence.

Additionally, if your funding agreement indicates that your lender rates are actually much higher than what they advertised, that’s a red flag, and they may not be operating transparently or in good faith. Choosing a reputable and transparent lawsuit funding company can help ensure you receive a better funding agreement—or the best loan offer.

Interest rates of the best pre-settlement funding companies

When you are seeking the best pre-settlement funding companies, make sure you also choose a reputable company that provides low-interest rates and fair terms, such as capped rates. A trustworthy funding company will evaluate your case based on its merits and offer you a suitable amount of funds (up to 10%) so that you can receive the settlement amount you rightfully deserve. 

It’s best to avoid lenders that want to offer you more than 10% of your potential settlement’s value if you’re looking for the best interest rates. This is because most of them provide high compounding rates that can significantly reduce the amount of money you’ll receive after your settlement pays out.

At Baker Street Legal Funding, we offer a 3-year capped rate with non-compounding monthly interest, unlike many other pre-settlement funding companies. This means you’ll have the same funding interest rate for the life of your loan. We also encourage plaintiff borrowers only to take out what they need to prevent their rates from increasing substantially.

Post-settlement funding rates vs. pre-settlement funding rates

There are two distinct varieties of settlement advances. Here are some key differences between these two types of funding and their rate difference:

Pre-settlement funding

  • Pre-settlement funding is a loan for plaintiffs with active litigation. An unsettled case takes longer to resolve and is a high-risk investment, resulting in higher interest rates due to the risk of your case not winning and not paying.
  • Although loan funds are typically approved the next business day, it may be more difficult to get approved since it is based on the strength of your case.

Post-settlement funding

  • Post-settlement funding is a loan for plaintiffs with settled cases.
  • This type of financing generally offers lower interest rates. A settled claim has a much higher chance of paying out. Post-settlement funding lowers the lawsuit funding company’s investment risk compared with pre-settled cases since the lender has more chances of getting paid.
  • Generally, they get approved within hours.
  • Interest rates are usually calculated every 3 or 6 months.

Calculate your costs with our lawsuit loan calculator

To get a more accurate sense of what a lawsuit cash advance will cost you, you’ll want to take a look at our lawsuit loan calculator

Some rates may vary slightly when you officially get approved for lawsuit funding; however, you can still get a good benchmark for comparison.

Input the estimate of the loan amount and when your case will resolve to get an idea of your potential payment and total costs for taking out a loan from your claim. Our rates are competitive in comparison to other lenders. Specific lawsuit financing rates will depend on some factors, including your case’s strength and your attorney’s full assistance with us. 

In most cases, Baker Street Legal Funding won’t charge you compounding rates. 

Now, you may be wondering, what interest rate does Baker Street Funding offer? Check out our settlement funding interest rates to learn more about our costs.

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.

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