This guide will give you the tools to save thousands of dollars on your lawsuit loan with 30 minutes of work
Do you have a lawsuit and need funding for living, medical or litigation expenses? If you need a pre-settlement lawsuit loan the first thing you should know is that they can be very expensive.
Because there is almost no regulation of the pre-settlement funding industry, you need to do a lot of research before moving forward with any one company. The good news is that if you follow our guide, you will be able to quickly find a solid lawsuit lending company and a fair deal.
What is a lawsuit loan?
A lawsuit loan is an advance against the proceeds from your expected settlement. In general, the loan is repaid from your settlement by your attorney if and only if your case is successful.
Because of that no-win / no-pay structure, your typical lawsuit loan isn’t classified as a loan in most states. That means that it is not subject to many regulations from usury laws to the Truth in Lending Act.
Plaintiffs often take out lawsuit loans to cover living expenses after the accident. As personal injury attorneys are paid on a contingency basis, it is less common to use lawsuit loans for actual lawsuit expenses.
Typically a funding company can advance 5% and 20% of your potential settlement. You can also get funding on your settled case, with some companies offering up to 50% of your share of the settlement.
Benefits of lawsuit loans
There are some potential benefits to taking out a settlement loan on your case.
One of the main benefits of funding is that it gives plaintiffs and attorneys more time. Insurance companies can take advantage of plaintiffs who are out of work and in need of cash urgently by settling for less than a claim is truly worth. With the breathing room provided by lawsuit loans plaintiffs can complete treatment and, if needed, allow their attorney the time to litigate their case.
Other potential benefits to pre-settlement lawsuit loans follow:
- Paying for medical expenses that are not covered by health insurance or a letter of protection
- Securing or maintaining transportation to medical appointments
- Maintaining a safe an comfortable residence
Also, unlike other potential financing options, pre-settlement funding comes with a no-win / no-pay structure. That means there is no risk of struggling to pay back your advance. If your case is unsuccessful, you typically owe nothing back.
Disadvantages of lawsuit loans
Lack of regulation
One of the benefits of lawsuit loans is that they are non-recourse (no-win / no-pay). Unfortunately, that means that they do not meet the typical definition for a loan. In most states, they are not regulated the same way as loans (and they shouldn’t be).
However, this means that in many states lawsuit cash advances are simply not regulated at all. That means that companies are able to charge whatever a consumer is willing to accept.
What makes this worse is that many companies (several industry-leaders included) seem to try to make it very difficult to understand the true cost of these advances.
Lawsuit loans are expensive!
No matter how you slice it, pre-settlement loans are more expensive than a typical home mortgage, auto loan, or even the average credit card.
35% annual interest is likely the cheapest rate you will find for pre-settlement funding. Most companies charge substantially more (think 100%+ APR for the average advance). At least one company charges more than 500% interest in the first year.
Lawsuit loans aren’t available to everyone
Not every case qualifies for case advances. Certain case types will not be eligible for funding until they have progressed substantially.
Similarly, residents from certain states will not be able to get funding, due to the state regulations in place.
Overview of lawsuit funding terms
Different loan companies may use different terminology for lawsuit loans. They all ultimately mean the same thing; non-recourse funding on a personal injury case. Some companies say that they provide an “alternative to lawsuit loans” and provide the exact same financial instrument under a different name such as pre-settlement funding or a lawsuit cash advance.
A few terms you need to understand and be aware of follow:
Interest is the headline figure that you might actually be quoted by a reputable funding company. When asking about interest rates, funding companies will give you a one-sentence answer that gives you very little information. You need to get a specific quote inclusive of all charges, not just a rate range.
- Compounding interest – compounding interest means that you are charged interest on the current amount due, rather than the amount you borrowed. Basically, you are charged interest on the accrued interest. If your case takes a long time to settle, this can have a HUGE impact on your final payback
- Simple, non-compounding interest – with simple interest, you are charged interest on the amount you borrowed only. That means you are not charged interest on accumulated interest, just the cash you received in your pocket (and any one-time fees)
- Multiple-method – often used by companies who don’t want to quote an interest rate at all, the multiple-method usually goes something like this: you owe back 1.5 times what you borrowed before 6 months, 1.8 times what you borrowed after 6 months and before one year, etc. Some companies even use a flat multiple of 2.0 times or 3.0 times regardless of when the advance is repaid.
These fees basically are used so that companies can charge a “lower” rate for marketing purposes. These fees are usually included when interest is assessed. That basically means you pay interest on funds you never received. You should ask that these be waived entirely or reduced substantially.
- Processing fees, application fees, and underwriting fees – charged for processing your advance request and completing the transaction
- Broker fees or origination fees – charged for brokering an application to another funding company
- E-signature fee – fee associated with using a legal funding company’s e-signature service such as DocuSign
- Delivery fee or handling fee – charged for funds delivery. Many companies charge more than the actual cost of the service itself. These fees are often deducted from the amount you actually receive from your funding. Approved for $1,000? You might only get $800 in your pocket after the delivery fee.
These fees are added to your balance at regular intervals. They purport to cover specific costs that the funding company has. You should ALWAYS ask for these to be waived entirely.
- Archiving or document management fees – these are sometimes charged on a semi-annual or annual basis for maintaining your funding file and are charged for every individual transaction
- Case servicing or case management fees – these are sometimes charged on a semi-annual or annual basis for managing your funding file and are often charged for every individual transaction
Maximum repayment amounts or “caps”
Keep in mind that many companies now provide advances that include a maximum repayment amount or a cap on the amount you will pay back. This is extremely helpful if your case happens to take a very long time to settle.
A good rule-of-thumb is to try to find a company that provides a 2.0x (two-times) cap on repayment. That should mean that you never pay back more than two-times the amount you borrowed, total.
Visualizing simple vs. compound interest, with fees
Using the terms and figures above in our lawsuit loan calculator, we can generate a graph that makes the difference a bit easier to see. Blue line A shows simple interest, red line B shows compound interest. As you can see, the difference between total payback with simple and compound interest increases over time. By the 30-36 month mark, you owe 70% more in interest with compounding.
Multiple-method (often used by one of the industry leaders)
Total payback on $1,000 advance, multiple-method
- 0 – 6 months: $1,500
- 6 – 12 months: $1,800
- 12 – 18 months: $2,500
- 18 – 24 months: $2,750
- 24 – 30 months: $3,250
- 30 – 36 months: $3,500
Users of the multiple-method make several claims to make it seem more attractive such as claiming they do not charge interest or fees. Be very wary of these claims. If it sounds too good to be true, it is. Check out how the multiple-method stacks up to the other two.
Again, blue line A and red line B are simple and compound interest. We added the multiple-method as yellow line C With the multiple-method, you’ll be paying back 95% more in interest by the 30 – 36 month mark as compared to 3% monthly compounded, even including a 10% processing and application fee.
Lawsuit loan alternatives
Before taking out any lawsuit cash advances it is always important to seek out less expensive options first. Even if the rates are simple, you are still selling a portion of your settlement. It is important to consider all options before moving ahead with a pre-settlement loan. Below, we provide some info on a few of the potentially cheaper alternatives to legal funding.
- Creating a budget
- Friends and family
- Government assistance programs
- Refinancing your home
- Bank or credit union loans
- Non-profit organizations
- Crowd-sourced funding
How to shop for pre-settlement lawsuit loans
Below we have detailed what you should do while shopping around for a lawsuit loan. Don’t just go with the first company that you contact. Make sure you get a quote in writing so you can compare that company’s rates to all others. Then see if you can get the company you want to give you a lower rate due to the quotes you’ve received with others.
Remember, these companies want your business so that ball is in your court. Don’t be bullied into taking a loan with a company just because they say they are the only ones who will fund you.
Finding reputable lawsuit lending companies and making a list
There are a few ways to go about finding the best pre-settlement funding companies. Here, we breakdown how to do that and what to look for.
- Using this website – we made this website for this exact purpose. We encourage you to use it to find a few reputable companies that you may want to move forward with.
- Using Google and Yelp – you can Google “lawsuit loans” and find more than 100 companies offering lawsuit loans.
- Ask your attorney – you can ask your attorney for their top picks – be sure to ask why they like the companies they recommend.
As you find companies you’re interested in, it is important to keep track of the name of the company, the name of people you speak to at the company, and their contact details.
1. Use CompareLawsuitLoans.com to find the company that’s right for you
Our website is designed for plaintiffs to quickly review key facts about many of the companies that provide pre-settlement lawsuit loans. Check out each company and compare them to find the company that might be right for you.
We provide info on Google, Yelp, and BBB reviews, turnaround times, contact details, interest rate information, and many other data points to get you started.
Some of the most recognizable brands in the pre-settlement funding industry follow.
- Oasis Financial
- JG Wentworth (Peachtree Financial Solutions)
- Golden Pear Funding
- US Claims
- Cherokee Funding
- Thrivest Link Legal Funding
- LawCash & Momentum Funding
- High Rise Financial
- Preferred Capital Funding
2. Using Google and Yelp
If you want to find more companies that are not listed on this website, you can always use Google and Yelp. Be wary of the fact that many companies only ask for reviews from customers that they know will give them high ratings. Some companies will even try to intimidate reviewers who leave low ratings or pay them off to remove them. In-short, always take care to look at the full picture, including doing your own research.
3. Ask your attorney
Sometimes lawyers have companies that they prefer to work with and will refer you to a lawsuit settlement funding company that’s best for them. It is important to make sure that the company is also best for you. You need to ask your attorney (and the company) some follow-up questions to make sure you get a good deal.
Ask your attorney about the rates, what kind of interest they charge (simple, or compounding), and what fees they charge. Remember, simple rates are always going to be cheaper than compounding rates, especially in the long-run. Also, you’re going to want a company that has minimal fees so you get the most money in your pocket.
If your attorney states any of the following reasons for wanting you to choose their company, it could be a red flag. You may want to avoid using the company in question:
- “We only work with this company” – this typically means your lawyer has a relationship with the company. If that relationship gets you a better deal, that’s great! Unfortunately, we’ve found that in many cases these relationships are not in the clients’ best interest. Ethically, your attorney should be open to you comparing rates and getting the best deal possible.
- “This company does not require a lot of information” – all companies should ask for documentation on your case. If a company is not reviewing your case fully, they are making up for losses on other cases by charging a higher interest rate. Even if it is more work for your attorney, you want to work with a funding company that is diligent.
- “They will reduce the amount due at settlement” – never sign a contract based on a verbal promise that is contrary to the writing on the page. Focus on the numbers on your contract. If they are 100% likely to reduce the amount due at settlement, why don’t they just incorporate that promise into the contract iteself and reduce your rate now, before signing?
Questions to ask a lawsuit loan company
Once you have your list of potential companies, call them and ask them the following questions:
- What are your rates? Ask the company their rates so you can get an idea of what you will have to pay back. Make sure they give you clear numbers and look elsewhere.
- Do you offer simple interest rates or compounding interest rates? Simple rates are typically cheaper than compounding rates over time.
- What are your fees? Each company charges additional fees before sending out funding. Make the company provide documentation that shows all fees including delivery fees.
- Do you price match or offer a lowest-rate guarantee? Some companies offer price matching with better rates if you bring them a contract from a different company.
- Will you contact my attorney? All reputable companies require attorney cooperation for legal funding. If the company answers no you should look elsewhere.
- How quickly can I expect my funds? Each company will have a different time frame from when they can expect to have your funds.
- What documentation does my attorney need to provide? Sometimes you might have some of the documents requested. You will want to make sure all requested documentation is available.
Each company should have clear, concise answers to each of those questions. If they beat around the bush or state that they cannot do anything without your attorney’s information, it may be best to look elsewhere. Shop around for quotes before offering your attorneys’ contact information.
How to compare lawsuit loan offers
Once you have the offers you are going to need to compare them. This may be tricky and might differ depending on what you need. Do you need the funds quickly? Are you only looking for a small amount? Do you need a large amount? How long will it take for your case to settle? These are all questions to consider while comparing.
A note – if any company you speak to only provides loan terms and not a payoff table, we’ve got you covered. Use our lawsuit loan calculator and comparison tool to generate a payoff and chart out the difference between offers.
Once you have compiled all of your lawsuit settlement funding quotes it’s time to compare them. Below we have given some examples of quotes on $1,000, both compounding and simple interest, with and without fees.
- Compounding 3% with $100 fees: Within 6 months – $1,313.46, 3 years – $3,188.11
- Simple 3% with fees: Within 6 months – $1,298.00, 3 years – $2,288.00
- Compounding 3% with no fees: Within 6 months – $1,194.05, 3 years – $2,898.28
- Simple 3% with no fees: Within 6 months – $1,180.00, 3 years – $2,080.00
- Multiple-method (no disclosed interest rate or fees): Within 6 months – $1,500 3 years – $3,500
You’ll want to look at the 6-month mark and the 3-year mark. Do the math to see what the actual interest rate charged is. Which quote is lowest after 6 months? Is it still the lowest after three years?
If one quote is clearly the lowest, you’ve found your initial pick. If one is lower initially but much higher as time progresses proceed with caution. The company may be using compounding rates.
In either case, you can now leverage these contracts to try and get a better deal elsewhere.
Choose the best offer and then repeat
Now that you have the company with the best quote, shop around again, but this time with that quote.
Ask other companies if they can beat the offered rate. If so, have them send you a written offer. Once you have done this again, compare the quotes once more and decide on which two you like the best.
Moving forward with your pre-settlement funding companies
Alright, now that you have the quotes from the two companies, you generally know what the legal funding entails, what you would have to pay back, and after how long. From here you’re gonna wanna move onto the next step, which is telling your attorney.
Let your attorney know you’ve chosen two companies by name
Make sure you know the two companies’ names. Contact your attorney and make sure they are alright with you getting legal funding. They may try and get you to go with a company they work with. If it is not one of the two companies you have selected, politely tell your attorney you have companies you would prefer to work with and send her/him the quotes.
After getting your attorney to agree to send the information you need, it’s time to give those companies a callback.
Call the companies and let them know your attorney’s info
Call back the two companies you have chosen and give them your attorney information. Once they have your attorney information they will request documentation on your case to see if they can approve you.
Hold the lawsuit funding companies accountable to quoted terms
While the underwriters are reviewing the case, make sure to check-in and assure that the quoted terms and conditions are being followed. If you changed the request, make sure the same rate and fees are being applied. You want to watch out for any hidden fees (such as money transfer charges).
Frequently asked questions
Below we have listed some of the frequently asked questions about legal funding.
You can get a loan on your lawsuit by applying online with one of the agencies listed on this website. Make sure you get written quotes from each company that seems to fit your needs and compare them. After that give the company you want your attorney’s information and start the legal funding process.
Lawsuit loans are worthwhile if you need money urgently and immediately. While they do purchase a portion of your settlement, they give you the cash that you need to pay your bills now.
The fees associated with lawsuit loans differ from company to company. Typical fees can be categorized as follows:
Interest fees – simple interest, compounding interest, and the multiple-method
One-time fees – application fees, processing fees, underwriting fees, broker or origination fees, e-signature fees, delivery or handling fees
Recurring fees – archiving or document management fees, case servicing or case management fees
See above for a more in-depth breakdown.
Many state bar associations deem it unethical for attorneys to provide loans to their clients, even without any charged interest. Check with your attorney and ask if this is an option for you. Note that in all states the bar forbids attorneys from charging interest on advances to clients. All states allow attorneys hired on a contingency basis to pay for case-related litigation expenses and be reimbursed through your settlement.
You cannot get settlement cash advances without an attorney. This is because your attorney is the person who pays back the loan after the case has closed. This is typically done through the attorneys’ trust account. Claimants do not pay back the advance directly.
Your credit score should have no bearing on whether or not you are funded by a company. The value of your case will help companies determine whether or not you can be funded. Plaintiffs that come across any company that requires a credit check should employ a different company.
Having lawsuit funding can help you get a larger settlement. This is because instead of having to settle for less, your attorney will be able to stay on your case. While the value of your case may be high, insurance companies might try to lowball you. Legal funding will let you pay your bills so your attorney can keep fighting for you