It is months until you will get your day in court. Over the course of your pending lawsuit, your financial options now have boiled down to cashing your 401(K) and taking out a home equity loan—both risky choices.
Not wanting to risk pushing back your retirement plans or defaulting on a home loan, you have decided on applying for settlement loans but are not sure which settlement loan companies to apply to.
The truth is, settlement loan companies are not created equally—some have better track records than others. Because of this, shop around and ask questions—this is your livelihood on the line.
To help you in your research, here are 11 questions to ask settlement loan companies that will clear up the fog.
- Do You Have an Application Fee?
Most legal funding companies do not have application fees, however, do not be surprised if some do. If the company in question does, ask if they can waive it.
If they refuse to, this could be a red flag. They may be in a financial bind themselves, and creatively need another way to generate revenue.
Still, it does not hurt to inquire further about this—ask them why they have an application fee. You never know, the settlement loan company could have a sound reason behind why they charge for this service.
- How Fast Can You Give Me the Cash Advance if I am Approved?
Several loan companies guarantee that they will give you the cash advance within 24-48 hours after approval. Some even offer to do this in less than 24 hours. Nonetheless, it is worth asking, especially if you are extremely tight on cash and live day to day.
- What is Your Relationship with Insert-Referral-Name?
If you are referred to a specific settlement loan company, ask the company about their relationship with the individual who referred you.
You need to be able to rule out all possibilities of conflict of interest—especially if your attorney or another individual involved in the case referred you. You do not want this to interfere with your case, let alone pose any legal consequences to you in the future.
- Is It Mandatory for My Attorney to be Involved in the Settlement Loan Process?
If the settlement loan company says no, this could be a red flag. The settlement company may be trying to rope you into an unfair contract or they could be inexperienced and unaware of how effective your attorney’s participation can be.
Not only this but consider the fact that your attorney has received more training in the legal field than you; they can not only provide you sound legal advice about the settlement loan process but help you secure a mutually beneficial contract.
- Does the Cash Advance Come with a Compound Interest?
If you are approved for a cash advance, you need to not only know if and when you need to pay the settlement loan company back (which we will discuss later) but also what you need to pay. Do you only need to pay back the principal? Or compound interest or simple interest too?
Compound Interest at a Glance
In a nutshell, compound interest is the interest on the interest. Unlike simple interest, it is not a steady number over the years; it grows at a much faster rate. In other words, the more compounding periods there are, the more interest you have to pay.
For example, you are given a $15,000 loan (the principal) with an interest rate of6% that is compounded annually. (This is a 5-year loan.) In this case, the compound interest accrued over the 5-year period would come out to around $5,073.38.
Asking this type of question can help you determine what financial route you should take—not only in acquiring the cash advance but in paying it back (should you be required to).
- Does the Cash Advance Have a Simple Interest Rate?
Ask the settlement loan company if simple interest is involved.
Simple Interest at a Glance
Simple interest is the interest on the principal. Simple interest normally is calculated by multiplying the principal, daily interest rate, and number of days in between payments.
It is calculated daily, which means if you know that you can make the payments on time or even early (should you need to pay), this may be a potential option.
- How Do You Determine If I am Approved or Not?
The reality is, not every application will be approved. Several settlement loan companies process and approve applications based on the level of risk involved and how likely your case will win. This is because they are using their money to fund you (this is why the interest rates tend to be higher); they need to know the odds involved in getting it back.
Nonetheless, other legal funding companies may do the processing and approval process differently. It is safe to say this is an important question to ask to get a feel how the specific legal funding company works and whether you would want to apply there.
- Do I have to Pay Back the Cash Advance?
Most pre-settlement funding companies will only require you to pay back the cash advance should you be awarded a settlement. If you do not, usually you are not required to do so.
Still, you need to check to ensure this is the case. What you don’t want to do is not ask this question and realize you are stuck paying back a settlement cash advance when your case did not win.
- When Do I Need to Pay the Cash Advance Back?
This question helps to give you an idea of the timeframe the settlement loan company has in mind. Depending on your financial situation, you may need a longer or want a shorter timeframe.
- Is a Contract Involved?
Know that it is not recommended to proceed without having a contract in place. Contracts ensure that all parties honor their ends of the bargain. Should a party not honor theirs, there can be legal options to pursue. In other words, it protects both you and the settlement company.
While contracts can be verbal or written, not all verbal contracts are legally binding. Meaning, make sure that the contract is written and that you and all other parties involved sign it. (Of course, make sure to read thoroughly throughit—the boilerplate included—as well as having your attorney look over it.)
- What is Your Experience with Settlement Loans?
In other words, how experienced is the settlement loan company? How many years has it been in business? How many plaintiffs has it given cash advances to? How experienced is the staff? What are their backgrounds?
At the end of the day, you want to go with an experienced settlement loan company that has a staff that knows what they are doing.
While websites can give you some insight and information, personally asking these types of questions helps you gather more about their experience and get a feel if the legal funding company is the right one for you.
Final Thoughts: Asking Settlement Loan Companies Questions Helps You Narrow Your Search
Use these questions to help you gain insight about the several settlement cash advance companies you are researching. Make sure to keep your attorney in the loop, conduct thorough research, check reviews on multiple review sites, and document your interactions. This is your financial future on the line.
That being said, a reputable settlement loan company can provide a short-term financial solution to patch up the pay gap, and not have to go to extreme measures—such as taking out that home equity loan or pulling from your retirement savings plan.
What has your experience been with a settlement loan company? Do you have any more questions to add? Feel free to leave a comment.
- Some settlement loan companies are more reputable than others
- Which is why it’s important that during the research process you shop around and ask several questions to get more of a perspective on what settlement loan company is right for you
- Here are some questions to ask to help you choose the right legal funding company for your needs:
- #1. Is there an application fee? Or is the application free of charge? Is there any way to waive the fee if there is one?
- #2. How fast can I get a cash advance, if approved?
- #3. What Is the Relationship Between You and Insert-Referral-Name? How are you connected?
- #4. Does my attorney have to be a part of the settlement loan process?
- #5 & #6. How much do I pay back? Just the principal? Principal and simple interest? Principal and compounding interest?
- #7. What is the approval process like? What do you take into account to determine if applicants meet the requirements or not?
- #8. If approved, do I have the pay the settlement cash advance back even if I don’t receive a settlement award?
- #9. In what timeframe must I pay back the cash advance?
- #10. Is a written contract involved in the settlement loan process?
- #11. What is the company’s background? When did it start up?
Investopedia: Simple Interest