Pre-settlement funding can seem to be the answer to the prayers of someone who is injured and whose lawsuit for damages is dragging on and on. While such funding can help in some cases it does have a downside that you need to be aware of.
First of all, most pre-settlement funding or lawsuit advance companies charge high fees. These fees are far higher than the interest rates charged on a traditional loan. The pre-settlement company will tell you that they need to charge you these high fees, because of the large risk they take giving you this advance. They point out that they offer non-recourse funding, meaning if you don’t get win your case and get a settlement they lose the money they advanced you. However, the risk of advancing you this money can actually be much less than the risks a bank takes in giving someone with a good credit a loan. Here’s why.
The lawsuit advance company does its homework. While they don’t check your credit, they do check with your attorney and make sure:
· The injury you suffered is significant and serious enough that there is little doubt that you will win your case.
· That the amount of money you are likely to be awarded is a large figure.
· That the defendant is clearly responsible and has insurance coverage to pay the settlement.
In other words, they do their homework and make sure that the money is going to be there so that they not only get their advance back but make a profit on those funds that will be adding up from the moment you get the advance.
Fees May Change Depending on When You Apply for the Advance
In cases where plaintiffs have all ready won their case or a settlement has been reached and a date is set for you to receive your money the pre-settlement funding company usually offer you lower interest fees, since they are nearly guaranteed payment, because they know that you all ready have the settlement coming.
If Insurance Companies Get Wind of The Advance, They May Drag the Case Out Even Longer
If you are hoping that by getting pre-settlement funding you can hold on financially for a better settlement offer, your plans could back fire. Insurance companies know that Lawsuit funding companies charge high monthly fees, and that you are desperate to apply for this type of funding. They know you will be worried about those interest monthly fees eating into your final settlement figure, so they may draw out the settlement negotiations, or try and delay the court hearings and rulings so you will be forced to settle for less just to stop those monthly fees from growing.
So while pre-settlement funding may be helpful if you are really strapped for cash, you do need to consider the downside when considering if this type of funding is right for you
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