What Is A Settlement Loan & How Does It Work?

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What are settlement loans and how do they work

Did you know that over 300,000 personal injury cases are filed annually in the United States? Now check this, nearly half of personal injury victims will consider some sort of borrowing due to financial setbacks from employment, civil rights, and personal injury lawsuits.

For personal injury victims in America today, there will always be questions as to “how” to get settlement money now. But mostly, we wonder how to get a loan while waiting on a settlement when bank loans and other types of help are no longer an option.

There are many reasons why people involved in lawsuits are cash strapped, and some of the main reasons are:

  • Inflation and economic hiccups.
  • Lack of income due to physical injuries.
  • The insurance company is dragging a case.
  • The loss of consortium, ordeal, grief.

Whatever your reasons might be, a settlement loan can remove that financial burden and provide you with the assistance you need before your pending lawsuit settles. Fortunately, most attorneys in the United States understand that lawsuit advance funding is essential for plaintiffs with financial difficulties because it helps them support themselves while they await to receive a settlement (or award).

A settlement loan can be a way to fix current financial troubles before getting a settlement or jury verdict. Still, weighing the pros and cons when evaluating this specific type of financing is important.

What is a settlement loan? 

If you are struggling to pay your bills and living costs due to a personal injury lawsuit, one place to look is your expected settlement or potential court financial reward. In simple terms, a settlement loan (pre-settlement funding or a lawsuit loan) is an advance you get from a lawsuit funding company solely based on the value of the expected recovery from your accident case. 

Although people have different opinions about these types of loans, contrary to popular misconceptions and misinformation, they are not the same as traditional loans. When we say “settlement loan,” we’re referring to non-recourse loans while your case is pending (that you could use to cover your bills, electricity, or everyday costs). Unlike the traditional term “loans” (as in conventional bank loans), a lawsuit loan is a type of cash advance on expected settlements (or jury-awarded verdicts) strictly designed for plaintiffs with strong cases that do not work like conventional loans. 

With a settlement loan, you don’t have to provide physical collateral because it is not required. (Examples of physical collateral include a car or a house), you also don’t have to show credit or income to secure the loan. Settlement loans are based on the expectation of a settlement or successful jury trial verdict; therefore, the repayment is contingent on you winning the case. That means you’ll repay the lender after your attorney’s fees are set aside and other liens are paid (such as medical and tax liens). You are no obligation to repay the pre-funded amount (principal and interest) if the judgment swings against you and you don’t get awarded.

Additionally, if your lawsuit’s recovery is reduced, the loan company cannot demand the difference. Instead, they may only lay claim over what is left after you have settled other liens.

How does a settlement loan work?

To get a settlement loan on your case, first, you apply for the loan after you have hired a contingency attorney. Once your application gets through, the lawsuit loan company will confirm your information to finish the qualification process. Then, you go through underwriting and approval. In this part of the process, an underwriter will contact your attorney to get your case merits, how much your potential recovery is worth, and the approximate time you will get compensated. Once approved, the funding company provides you and your lawyer with a funding agreement. In that agreement, you will have an interest charge and possible fees you won’t pay until you get your settlement (or award after a trial) paid in full. Once the contract is signed, the lender puts the funds into your account or sends you a check. 

To qualify for a lawsuit settlement loan, you need:

  • To have a contingency lawyer.
  • Your attorney’s consent to proceed with a lawsuit advance.
  • A case worth over $50,000.
  • To be suing a well-insured defendant.

Do banks do settlement loans?

Traditional banks don’t provide settlement advances because they see injured people who cannot work and pay their bills as highly risky borrowers who could fall behind on paying them back. 

Even if you urgently need the cash, a financial institution like a bank will not lend you money before a judgment or a settled case is paid because they don’t base their loan on the expected monetary compensation of a legal case.

Pros of settlement loans.

As you’re weighing your decision, take a look at the overall advantages of settlement loans.

You get money to cover financial commitments.

Lawsuit advances tide you over when you are short on cash during a legal proceeding.

Your attorney can get ample time to build a better case.

 In most accident cases, the compensation payment comes from the liable party’s insurance company. Insurers typically delay settlement offers to pressure the injured party to settle for less. Settlement loans can buy your attorney enough time to build a strong case and negotiate a better offer.

You can get the loan within 24 to 48 hours.

Once approved, you can receive cash almost immediately or within a business day. The best settlement loan companies have a process that takes 24 hours from when your lawyer provides all the required information about your case.

You get higher approval loan amounts.

Unlike traditional loans, you can fund your advance up to 10% of your case’s worth. Your other debt has no jurisdiction over how much money you can get. 

There are no credit or income checks and no monthly payments.

Settlement lenders don’t require credit or income verification. Unlike traditional loan institutions that obligate you to repay a loan with interest after a stipulated time and on a monthly basis, settlement loans don’t have monthly payments. This is good news if you have exhausted every other financial option available, have no income, and cannot qualify for a traditional loan.

Your assets are untouched if you lose your case.

You don’t have to worry about forfeiting your home, vehicle, or any other asset if your case goes the other way and you don’t recover for your damages.

You can get a loan if you have a settlement.

If your claim has been settled, but the payment is delayed, post-settlement funding is available to help you get through this phase while you wait for your settlement check.

Cons of settlement loans.

While a handful of settlement loan companies are legitimate and transparent in their offers and operations, a lot of them are gimmicks and are only concerned about enriching their pockets. Read on to learn the cons.

Lack of industry regulation.

The settlement loan industry is widely unregulated in most states; plaintiffs often get stunned when they are presented with a wide range of interest rates. While some settlement loan companies front low-interest rates that are too good to be true, others boldly throw high and compounding interest rates at plaintiffs who are often frustrated and drained by protracted lawsuits. In this case, plaintiffs have no option but to sign off on repayment agreements that will leave them with peanuts when they get their award. 

Without an attorney or their consent, you cannot get funding for your case.

The biggest drawback to obtaining a settlement loan is when your attorney does not communicate your case details with the lender or does not sign the funding agreement. The chances are you have crossed paths with claims that your lawyer can prevent you from getting a settlement loan are false. Your lawyer cannot and must not prevent you from taking out a settlement loan to cushion the financial problems of litigation and life expenses because it is unethical. Your attorney can’t tell you not to get an advance on your legal settlement and deny you from getting financial assistance from your expected compensation. And, if they are still unwilling to help, without their cooperation, no one will fund your case.

Compounding rates and no caps.

A settlement loan may not be your lowest cost, but it should not cost more than 3.4% monthly at non-compounding rates. Some lenders offer capped rates capping in the third year of the loan. A capped rate protects you from getting stuck paying interest for a long time if your case goes to trial and takes over three years to resolve. Without a capped rate, these charges add up, only hurting your potential financial recovery. This is where settlement loans can become a headache. So, to save yourself from adding to your burden, have your attorney at the forefront — spearheading the process. Once you get approval for a settlement loan, have your attorney review the contract with you. This will increase your chances of understanding the rates and terms without the risk of running into gimmicks and scams.

The takeaway.

When you are caught up in a civil case, your pocket may be fast-running dry, and medical bills and other living expenses keep piling up. 

Running into a financial brick wall during a personal injury lawsuit or accident claim is a recurring nightmare that has caused many injured victims to lose sleep while seeking legal redress, feeling pressured to settle for lowball offers from defense attorneys. While that is the cruel reality of our times, you can save yourself from the financial stress and strain of protracted litigations by taking a loan on an insurance settlement or personal injury payout. A lawsuit advance might work well to help afford your needs during the pendency of your case. 

If you’re struggling with paying your bills, you can potentially qualify for a settlement loan at no risk because it is non-recourse money you borrow against your lawsuit settlement or verdict, which you pay back after you win your case.

If you think a settlement loan may be right for you, check Baker Street Funding to determine whether your legal case qualifies for a loan. We have made the process incredibly easy for plaintiffs in only 24 hours from when your lawyer sends the required information.

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