12 Tips for Researching The Best Pre Settlement Funding Companies

You are on the job. You are walking down one of the aisles when you slip and fall. The floor was wet and there was no caution sign. While most of the time, you may only suffer a skinned knee, you realize you can’t get up off the floor.

Soon, the paramedics come and you are taken to the hospital. Luckily, after running several tests, it is confirmed that there is no permanent damage. However, it is expected that you will be off the job for several months, if not a year, to recover from the fall.

Weeks later, you receive (and keep on receiving) medical bills: hospital, physical therapy, the list goes on. You still can’t return to work. Yes, you have filed a personal injury suit but the courts proceedings are slow.

You have heard about pre settlement funding companies; you are considering this, along with several other financial options, but don’t know how to go about finding a reputable lawsuit loan company.

Luckily, you don’t have to look far; here are several tips when it comes to researching the best pre settlement funding companies.

#1. Know What a Lawsuit Loan Is and How the Process Works

First and foremost, what is a lawsuit loan? In a nutshell, this type of loan normally is reserved for plaintiffs who have a pending lawsuit and are awaiting a settlement or judgement.

The plaintiff could be involved in a personal injury suit (i.e. auto accident, product liability, slip and fall…)[1] or be a part of a class action suit.[2]

In general, plaintiffs who are approved and given a lawsuit loan use this to pay off everyday necessities such as utility bills, mortgage, food, clothing, and medical bills.

Depending on the contract between the pre settlement funding company and plaintiff, the plaintiff may have to pay back the loan when and if he or she receives a settlement. (In some cases, this is a non-recourse loan; if the plaintiff loses the case, he or she doesn’t owe the lawsuit loan company anything.)

If the plaintiff does need to pay back the loan, normally he or she will be paying back the principal and accrued interest (whether it is simple or compounded).

Again, depending on the lawsuit loan company, the plaintiff may not have to pay anything over the settlement award. However, this is not always the case. According to Fox Business, borrowers can pay 100% plus in interest per year.[3]

This is why it is important that if you do decide on taking a lawsuit loan, do your research and make sure you are fully aware of the terms and conditions of the contract.

How the Process Works in General

The plaintiff fills out the lawsuit loan application. In some cases, he or she may have to pay an application fee (however, not all pre settlement funding companies charge for this).

Within a couple of days, if the lawsuit loan company approves the application, representatives from the company will call the plaintiff’s attorney and plaintiff.

From there, the plaintiff can accept or reject the offer. If he or she accepts, a contract is signed and the contract is carried out.

(Please know that this process may be differ depending on the lawsuit loan company; no matter what, it is important that your attorney is in the loop and reviews the contract, and that the lawsuit loan company discloses everything up front before signing. Also, know even if you are approved for a loan and a contract is drawn up, you are not obligated to sign.)

Why Do Research

While lawsuit loans and the loan process may seem cut and dry, it is anything but. The truth is, the lawsuit loan industry began in the 90s. Even though it has been over a decade, state and federal regulation have yet to catch up.

This means that this industry does not have to abide by the same limitations and standards as banking institutions and the regular loan industry.[4]

Because of this, pre settlement lawsuit funding companies don’t have to cap their interest rates, with borrowers often times making large out-of-pocket payments.

While this doesn’t make borrowing from a lawsuit loan company “bad.” It is all the more reasons to explore your financial options and conduct thorough research before doing so.

#2. Look and Assess All of Your Financial Options

As Fox Business states, a settlement loan is meant to be a “once-in-a-lifetime product.”[5] Think of it as a lifeline when plaintiffs are drowning in a sea of debt, with no other financial options to hang onto (i.e. contributions from family or friends, traditional loans, extending a line of credit, possibly pulling from 401(k) and home equity, etc.).

With sky high interest rates, it is not supposed to be a long-term fix, simply a short-term one to patch up the financial gap while you are waiting for the judgement and settlement (should you be awarded one).

That being said, first off, you need to assess if you need a settlement loan. Or if there are other financial options for you to explore.

Do You Have a Good Credit Score?

Run a credit report and see what your credit score is. In general, a good credit score is between 690 and 710.[6] Also, take inventory of your assets and talk with a financial advisor to see if you would qualify for a traditional loan.

Can You and Do You Want to Pull from Your 401(k) and Home Equity Loan?

Let’s face it, pulling from your retirement plan and home equity loan can be risky, especially if you are nearing retirement or are close to paying off your house. Nonetheless, it doesn’t hurt to ask your financial advisor for his or her professional advice.

Pulling from Your Retirement Plan

Yes, if you do decide to pull from your retirement, you may have to work longer to pay it back. Are you willing to take this on?

Pulling from Your Home Equity

And, yes, tapping into your home equity loan for frivolous reasons—like unnecessary personal spending—is dangerous, at best. But, for emergencies like paying your bills while you await trial, this is a path worth taking.

Know if you cannot pay back the money, you risk foreclosure. That being said, if you can take out money from any other loan, it may be wise to do so.[7]

Like we have said before, it is best to go to a financial advisor to discuss these financial options.

Can Friends and Family Give You a Donation or Loan?

Friends and family may be the best go-tos when it comes to loans and interest rates. For one, if they have the extra cash, family and friends may be happy to contribute and help you in your time of need. Plus, it is relatively easy to get approval.

However, you need to make sure that the loan or donation does not come between you and said family member or friend. You need to have clear communication from the gates in order to know what both parties expect.

You also have to be aware that even though the lender is a family member or friend, you may have to pay taxes. For this reason, we recommend that you speak to an IRS representative and/or financial professional about the ins and outs of family loans.[8]

After Exploring Your Financial Options…

You have explored all of your financial options. Your credit score is well below 690. You have little to no assets you can liquidate. You are repeatedly denied for traditional loans. Friends and family members don’t have any extra cash to give or loan to you.

And, you have come up with your financial advisor that pulling from your 401(k) and home equity would be a bad move for you. At this point, it is safe to say you may want to think about applying for a settlement loan—especially if you are on the brink of foreclosure, eviction, and homelessness.

While lawsuit loans do fall into a gray area, there is a time and place for them. According to Fox Business, over 60% of borrowers used the cash advance to (at least) partially avoid foreclosure and eviction.[9]

Pre Settlement funding companies don’t run credit reports or check employment; it comes down to whether your case has a good chance of winning.

Nonetheless…

This goes for any loan, especially one that is meant to be used as a short-term fix and has high interest rates: you need to have a financial plan that maps out how and when you are going to pay the loan back. In doing so, you prevent yourself from possibly sinking into further debt.

#3. Consult with Your Attorney

Ask your attorney if he or she recommends applying for a settlement loan. He or she knows your case and will be able to provide you legal advice that is in your best interest.

If your attorney does give you the green light, you may want to ask him or her about which lawsuit loan companies he or she recommends. That way, you can start creating a list of potential settlement loan companies you can research and contact.

#4. Check Out the American Legal Finance Association

The American Legal Finance Association (ALFA) is a trade organization for legal funding companies.[10]

Those belonging to it must abide by their standards and protocols (or the ALFA code of conduct)—such as having written acknowledgement from the plaintiff’s lawyer before providing the funds.[11]

While these legal funding companies may be a good starting point, know that ALFA represents them, and so has their best interest at heart.[12]

#5. Word of Mouth from Trusted Family Member and Friends

Talk with family and friends to see if they have dealt with pre settlement funding companies before. Perhaps a friend has used pre settlement services when he or she was involved in a personal injury suit years ago?

Ask around and hear what they have to say. If a trusted friend or family member had a positive experience with a pre settlement funding company, it may be a good idea to research that company.

At the end of the day, word of mouth is a great way to get reliable reviews and opinions. Instead of reading reviews online from people you don’t know, you are talking to someone you know and trust who has been there and done that. Even if you don’t end up looking into said lawsuit loan company, it does not hurt to ask.

#6. Read the Reviews

Speaking of online reviews, be sure to read them. The reviews will give you a glimpse into how the lawsuit loan company does business, and whether the company is reliable and reputable or not.

In general, be cautious about any companies that have all 5-star, positive reviews, as well as those that have mostly or all negative reviews.

And, be sure to draw your line before reading the reviews. What are deal breakers? If a reviewee complains that the lawsuit loan company didn’t provide them with a large loan, this may not be over the line for you.

On the other hand, if the lawsuit loan company gave the reviewee a smaller or larger loan than was in the contract, this is red flag; you may want to look elsewhere.

(Speaking of which, read “Red Flags to Watch Out for When Considering a Settlement Loan” Parts 1 and 2 to learn about what you look out for and be aware of.)

#7. Come Up with a List of Questions to Ask the Pre Settlement Funding Companies

Ask the tough questions. It is as simple as that. While we can bet, you will hear about how fast and quick you can get that cash advancement, not every lawsuit loan company is going to be as forward with their rates and fees.

This is why it is important (and necessary) to ask about and get their pre settlement funding rates in writing. Some questions to ask include:

What interest rates do they charge?
Is it simple interest or compound interest?
If it is compounded, is the interest compounded monthly or even more frequently than that?
When does the principal and interest have to be paid by? Do they offer refinancing options?
Do you have to pay back the cash advance if you lose the case and don’t receive a settlement?
Do you have to pay back the entire loan if it exceeds your settlement?

For more questions, read “13 Questions to Ask Settlement Loan Companies.”

(Also, make sure that you have your attorney present when you do ask the lawsuit loan company your questions.)

#8. Check to See if the Company is Registered with the Better Business Bureau

The Better Business Bureau (BBB) strives to create a marketplace where sellers and buyers can trust one another.[13]

If the lawsuit loan company is registered with the BBB: One, most likely they are a legitimate business. And two, if they have several positive reviews, they may be a company to consider contacting.

Also, use the BBB Scam Tracker to see if any of the lawsuit loan companies on your list are not legitimate.[14]

#9. Be Aware of Red Flags And/or Shady Situations

Does the lawsuit loan company advise you not to bring your attorney? Are they vague about their interest rates and fees? Are there no reviews about them? Did they just start this year and you can’t find anything online about the company? Do you have a gut feeling that something is off?

Be wary of red flags and shady situations. Again, not every lawsuit loan company is the same; being that it is not as regulated and the amount of regulation fluctuates by state, you need to be your own regulator.

(To learn more about potential shady situations check out our article, “8 Shady Pre Settlement Lawsuit Funding Scenarios.”)

#10. Consult with Your Attorney… Again

What we are trying to say is keep your attorney in the loop. Your attorney has your best interest and will give you legal advice—whether you should bow out of a contract or consider negotiating for better terms and conditions.

#11. Familiarize Yourself with Lawsuit Loan Regulations in Your State

As mentioned, the amount of regulation for lawsuit loans depends on the state. Which is why we recommend that you familiarize yourself with your state’s lawsuit loan regulations.

In some states, settlement loans are not considered loans, which makes it easier for some pre settlement funding companies to skirt around fair-lending and usury laws.[15]

With some states having little to almost no regulatory oversight, it is important to know what lawsuit firms in your area legally can and cannot do. We also recommend that you speak with an attorney if you have more in-depth questions.

#12. Shop Around and Compare

Be sure to not just contact one or two lawsuit loan companies but several. That way, you can compare lawsuit funding interest rates, lawsuit funding fees, and terms and conditions.

In doing so, you get a better idea of what companies you would work with and which companies you would not.

Researching Pre Settlement Lawsuit Loans: Final Thoughts

As we have said before, this is a once-in-a-lifetime product—a life line, so to speak, when you have no other financial option and are facing dire financial consequence like foreclosure and eviction.

Always be sure to research, research, research. Be on the lookout for what lawsuit loan companies do and don’t reveal. At the end of the day, you want to work with a company that discloses everything: terms and conditions of the contract, interest rates, you name it.

And, make sure your attorney is always be present and stays in the loop. Have you dealt with a pre settlement funding company? Be sure to share with us your experience.

Summary

Lawsuit loans normally are for plaintiffs involved in a personal injury or class-action suit
They are typically a once-in-a-lifetime product and short-term fix
Explore other financial options before considering a loan, as interest rate tend to be sky high
Nonetheless, they can be a life line if you are sinking in debt and have nowhere and no one else to turn to
Needless to say, you need to conduct research since not every lawsuit loan company is the same
Consider checking out the American Legal Finance Association (ALFA)
ALFA is an organization that represents legal funding companies; they have a set of standards members must comply with
While this type of regulation is good, know that the organization represents and has the legal funding companies’ interests at heart
Talk with family and friends who have dealt with lawsuit loan companies to see what they recommend
Read online reviews; in general, you may want to think twice about companies with a majority of negative reviews or all positive reviews
Come up with a list of questions beforehand to ask the lawsuit companies so you can weed out which companies you would work with and which you would not
See if the companies are listed in the BBB website
Consult with your attorney if they recommend a lawsuit loan; if so, ask which company they would recommend
Familiarize yourself with lawsuit loan regulations for your state
Shop around and compare lawsuit firms: pre settlement funding interest rates, terms and conditions…