Facing a personal injury lawsuit brings financial pressures that can intensify an already stressful situation. Essential costs like rent, mortgage, household bills, food, and transportation demand attention, regardless of ongoing legal disputes.
Many find a solution in pre-settlement legal funding, also known as a pre-settlement loan. Unique for its non-recourse nature, this funding offers financial support without the typical risks associated with traditional loans. This means you’re not obligated to repay unless you win your case. Plus, your personal assets are safe regardless of your lawsuit’s outcome.
But how does choosing pre-settlement legal funding affect the portion of your settlement allocated for loan repayment? Let’s unpack the details.
Understanding the Lawsuit Loan Terms
Your lawsuit loan terms outline the specifics of how the loan works to help you understand your obligations and what to expect. When you get a lawsuit loan, the funding agreement will specify the loan amount (principal), and the interest rate (a monthly percent of the principal). Your agreement will also detail any fees (a fixed percentage of the principal) you need to pay, which can include administrative costs or processing charges.
Additionally, repayment terms are also included, which happens from the settlement amount once the case concludes. If you lose, no payment is due.
What Affects the Percentage I’ll Pay on a Presettlement Loan?
Loan Amount vs. Settlement Amount
The loan amount you get is compared to the expected value of your lawsuit. Usually, you can borrow up to 10% of your predicted settlement value. This helps you get the money you need without borrowing too much, which would make you pay back more. Say, if a settlement of $100,000 is expected, you may be eligible to receive an advance of up to $10,000.
Interest Rates and Fees
Interest rates and fees, which accumulate over time as per your agreement’s conditions, add to the total amount you have to pay back. Borrowing $10,000 now might result in a total repayment of $14,000 after one year if the interest rate is 40% annually ($10,000 + $4,000 interest).
Duration of the Loan
The longer your case takes to settle, the more interest you’ll owe. For example, if it takes two years, you’ll owe more than $14,000 because interest keeps adding up each year. However, many companies cap interest at 2-3 years, so if your case takes 4 years, you’d only owe the amount calculated for 2 years.
Duration of the loan and interest caps example:
| Duration | Without a Cap | With a 2-Year Cap |
|---|---|---|
| After 1 year | $14,000 | $14,000 |
| After 2 years | $19,600 | $19,600 |
| After 4 years | $38,416 | $19,600 |
Without a Cap: The interest continues to add up each year.
With a 2-Year Cap: The interest stops adding up after 2 years, so the amount owed doesn’t increase beyond the 2-year mark.
Additional Fees
Some companies charge extra fees for things like processing your loan or other services. These fees will increase the total amount you have to pay back.
Other Considerations to Determine Your Funding Amount
- Merits of the Case. Strong cases with higher chances of winning might secure better repayment terms. Conversely, weaker cases might attract higher percentages due to increased risk.
- Settlement Expectations. If the expected settlement amount fluctuates based on the progress of the case, this can alter the repayment percentage.
- Insurance Delays. If the insurance company delays payment or contests the claim, it can prolong the case duration, increasing interest and repayment amounts.
- Inflation. Rising costs of living and inflation can influence the expenses related to the case, affecting the overall settlement and repayment.
Calculate the Potion of the Settlement Used for Loan Repayment
If you want to calculate the percentage of the settlement used for repayment, use this calculator:
Quick Tip: If your goal is to retain a larger percentage of your settlement, choosing a pre-settlement funding company like Baker Street Funding, known for its capped and non-compounding low interest rates, can help you save on your lawsuit loan repayment.
Does My Settlement Size Determine the Repayment Percentage?
Small Settlements
For lenders who fund smaller settlements, the percent might be higher. Here’s why:
- Risk and Costs. Funding companies take on higher risk with smaller settlements. Since the settlement is lower, there’s less profit margin after covering the principal and interest. Funding companies often charge higher rates to offset this risk, which increases the percent of your payment.
- Fixed Costs. Administrative and legal costs are often fixed and don’t scale with the settlement size. Smaller settlements bear a proportionally larger share of these costs.
Large Settlements
In the case of larger settlements, the payback percentage tends to be lower. This is due to several reasons:
- Risk Spread. With larger settlements, the risk is spread over a higher amount. This increases the likelihood that the funding company will recover its investment, including interest and fees (even with a lower payment rate.)
- Economies of Scale. Larger settlements can absorb the fixed costs more easily, reducing the overall cost burden per dollar funded.
For instance, suppose you have a small settlement of $20,000 and a large settlement of $200,000. In both cases, let’s assume the funding company provides 10% of the expected settlement amount.
Settlement Comparison
| Component | Small Settlement | Large Settlement |
|---|---|---|
| Funding Received | $2,000 | $20,000 |
| Annual Interest Rate | 50% (0.50) | 30% (0.30) |
| Number of Years | 2 | 2 |
| Total Repayment (before fees) | $4,000 | $32,000 |
| Additional Fees | $200 | $500 |
| Total Repayment | $4,200 | $32,500 |
| Settlement Amount | $20,000 | $200,000 |
| Repayment % | 21% | 16.25% |
Explanation
- Small Settlement. Higher interest rates and fixed costs lead to a higher repayment percentage (21%).
- Large Settlement. Lower interest rates and better cost absorption lead to a lower repayment percentage (16.25%).
Calculating the Right Funding Amount for Your Case
When you apply for pre-settlement legal funding, the amount you can receive is determined by specialized attorneys within the funding company, known as underwriters. These professionals analyze the specifics of your case and estimated settlement value to decide how much they can safely lend you. Larger potential compensations open the door to higher funding offers.
- Severity of Your Injury. Lenders view serious injuries, such as catastrophic injuries, as more likely to yield higher settlements, potentially resulting in larger loan amounts.
- Defense Insurance. More insurance coverage by the opposing party increases the potential settlement, improving the likelihood of repayment and leading to higher funding availability.
- Strong Evidence and Documentation. If your case has strong proof, your case is more likely to succeed, making lawsuit loan companies inclined to provide funding.
- Precedent and Jurisdiction. Funding amounts might be adjusted based on historical results of similar cases, which can sway a case’s prospects positively or negatively.
- The Opposing Party’s Position. Lenders are willing to provide larger cash advances is the defense likely to settle for a large amount.
Quickly Understanding the Division of Your Settlement Funds
Understanding how your settlement funds are distributed after a lawsuit is key to planning your next steps. Each settlement follows a specific order of payments to make sure everything you owe is paid off before you get your payment.
- Attorney Fees. The first deduction from your settlement is usually attorney fees, which is 33% – 40% or 1/3 of the final settlement.
- Other Obligations. Next is paying any additional liens or debts attached to your payout, like healthcare provider or medical liens, which are subtracted before repaying the advance. These obligations can vary but often take up about 10% to 20% of the settlement.
- Lawsuit Loan Repayment. Following the repayment of the liens, your lawsuit loan (or pre-settlement funding) is next on the list, including both the principal amount and any accumulated interest. This repayment generally uses up around 14% to 50% of the settlement, depending on who funds your case.
- Plaintiff’s Receipt. Finally, what remains is your share. Typically, this will be around 20% to 50% of the settlement, depending on the total deductions.
Example calculation of settlement distribution if you have a $100,000 settlement:
| Component | Percentage | Amount |
|---|---|---|
| Attorney Fees | 33% | $33,000 |
| Other Obligations | 15% | $15,000 |
| Lawsuit Loan Repayment | 14% | $14,000 |
| Plaintiff’s Receipt | 38% of settlement | $38,000 |
Quick tip: Only borrow what you absolutely need from your pending lawsuit to minimize the repayment amount.
Refinancing Your Settlement Loan to Lower Your Repayment
Refinancing involves taking out a new loan to pay off an existing loan. The goal is to get better terms, such as a lower interest rate or lower fees, to reduce the total repayment amount.
Potential Benefits
- Lower Interest Rates. If a new lender offers a lower interest rate, refinancing can reduce the amount of interest you owe, lowering your overall repayment.
- Reduced Fees. Some lenders may have lower fees or more favorable terms, which can decrease your repayment amount.
- Better Terms. You might find a lender offering better repayment terms, such as a cap on interest or more flexible repayment options if there is a delay.
Quick Tip: Don’t underestimate the potential power of refinancing your legal funding agreement from your current funding company to a new lender. You could end up owing a lot less once your case successfully concludes because your charges will be reduced.
Find out more about pre-settlement legal funding buyouts from Baker Street Funding; we can potentially improve your rates and ultimately lower your final payment.
The Takeaway
With a no-win-no-repayment feature, pre-settlement funding offers financial relief without the risk of future debt if the case doesn’t go your way. It also gives you up to 10% of your expected payout, a measure that keeps a bulk of your settlement intact.
However, if you’re not careful, your loan repayment could go up to 30% every time you take out funding. That’s why understanding your repayment structure is essential for keeping most of your settlement post-victory.
Remember, this financial tool is there to support you, not steal the future benefits of your settlement. And that’s exactly why Baker Street Funding simplifies this process by offering transparent, competitive financing options from 2.95% – 3.4% non-compounding rates with a 3-year cap.
We’ve helped thousands keep their loan repayment amounts as a small percentage of the total settlement. Contact Baker Street Funding at (888) 711-3599 to explore your legal funding options with transparent, fair financing.
