Here, we will help explain what a loan on a settlement is and how to obtain one. Read about the pros and cons of taking a loan on a settlement and the best time to do it.
What It Means
Consumers usually call a loan on a settlement a loan. There is no such thing as a loan on a settlement. It is sometimes referred to as a lawsuit loan. When a plaintiff seeks funding on a future settlement it is really a non-recourse cash advance. This means they don’t have to pay the money back if they lose their case. A funding company is permitted to charge more than the usury or legal loan rate in most U.S. jurisdictions. This is because the funding company is taking risk of capital by offering you a settlement loan.
We will continue to use the consumer slang of “loan on a settlement” as the basis for explanation. A settlement loan is available when either your case has settled, there is a verdict or judgment on appeal but it is waiting for final payment, or if your lawsuit is still pending and the insurance company is dragging their feet to settle with you or planning to go to trial. Funding companies provide their services for those who need it and provide cash to make it through the tough times.
These companies are in the business of providing this service to consumers in time of need if their cases qualify. Now let’s discuss how to go about obtaining a loan on your settlement or future settlement.
Obtaining a Loan on Your Settlement
You are probably already involved in a pending lawsuit that is taking way too long to settle. And you are interested in how to go about obtaining one of these loans on a lawsuit. The good news is the process is really quick and easy! If you work with experienced companies, you could have your cash loan in 24-48 hours after a brief evaluation period. The good news is the evaluation process is free. You will never pay any out of pocket expenses for your loan on a lawsuit.
Step One
Here’s how to start the process. There is a simple 3 step process to obtaining a loan on a settlement. The first step is by contacting a lawsuit funding company with a reputable presence on the internet. You can either fill out an online application and a sales rep will call you back. Legal-Bay Lawsuit Funding have reps standing by 24 hours a day to take your application.
The information that you will need to submit an application is very basic.
- Your personal information,
- your lawyer and law firm information,
- any circumstances about your lawsuit.
Once the funding company has this information then you go on to step #2.
Step Two
The funding company will speak to your law firm and request for specific case documents to begin the process. This is also called The Underwriting Process. It is most important to let your law firm know that you are working with to obtain a loan. Always specify which company you are working with or your law firm might not send your documents.
Most funding companies are used to doing loans on a settlement. Unless you specifically authorize them to send your documents, they will not do it automatically. Remember, the funding company cannot proceed until they have verified information regarding your lawsuit circumstances from your law firm.
Step Three
You’ve filled out an application and your funding company has received all the necessary documents to provide the evaluation. Step # 3 is the final step. If your case is approved for funding, the funding company will make you an offer within 48 hours. Once accepted, it will send you a contract with all repayment terms in it. If you are comfortable with the repayment terms, you and your lawyer sign the agreement and you are funded. Simple as that.
Now you have the money, and hopefully, this relieves some of your stress. More importantly, this provides your lawyer more time to work on a larger settlement. I’m sure you are wondering, well how do I pay this back? The good news is you never have to worry about paying back your loan on a lawsuit. No, the money is not free. It is just handled by your lawyer or law firm office upon your final resolution of the case. Much the same way your medical bills or other liens are paid.
There are no monthly payments like a credit card or monthly bills; however the longer the case goes then the more you will owe.
Everything is spelled out in the contract, so both you and your law firm are fully aware. The final payment of the loan will reduce the final amount that you receive. You must pay back the money you took, plus any usage fees of the money disclosed in the contract.
Here are the pros and cons of advancing funds.
Verdict or Judgment on Appeal Cases
The most important time to take a loan on a settlement is when you have been awarded a large sum of money by way of judgment or verdict by judge or jury trial. Typically these large awards are in appeal process as the defendant cannot believe they lost the case, and for the large sum of money that was awarded to you. In these instances, it makes sense to take a loan on a settlement or verdict case.
Why is it important? Well, a loan on a settlement like this provides you with a hedge if you were to lose the case. Remember, you owe nothing if you lose your case. So, let’s say you are awarded $5MM and the case is in appeal, it is possible that the verdict can be remanded for a new trial, or the verdict completely vacated and you lose everything. That is right, it is possible that your verdict could be thrown out by an appellate judge and you get nothing. However, if you take a loan on a settlement for $500K, at the very minimum you walk away with $500K. It could be in fact more money than your lawyer wanted to settle the case for.
And this poses no risk to you if the case loses.
Even better, in most jurisdictions, the defendant is required to post a bond and pay you interest on it, so the interest you receive on a $5MM bond outweighs the cost of the loan on a settlement for $500K. Not taking “money off the table” in situations like this is not a prudent financial decision, and any good lawyer should advise their clients to take a minimum of 10% of their award as an “insurance policy” of sorts.
Legal-Bay is one of the few companies that provides large commercial litigation loans on this type of settlement, ranging in pricing from $100K to as much as $10MM. If you have a large verdict of this nature, contact us immediately to obtain a loan on a settlement or verdict that you received.
Other Reasons To Take a Loan on a Settlement
Your case is nearing the end, however the insurance company only wants to give you a $100K for your case, but you and your lawyer know the case is worth at least $200-300K. However, you are out of money and your bills are piling up and you need to get this resolved as soon as possible. Well, in this scenario borrowing a loan on a settlement of $10K would be very prudent. It would enable you to remain patient. It will enable your attorney to continue to work on the case and show a strong hand against the powerful insurance company. Ultimately, if your lawyer can get the insurance company up to $250K to settle the case you will receive an extra $150K in case value.
Let’s do the math now.
You had an offer for $100K and it would’ve netted you about $60K after fees and liens if you took it. But, you took a loan on a settlement for $10K and decided to wait it out for fair value. Your lawyer was able to get you $250K by being patient. So, instead of getting $60K, you now receive $145K in total cash after paying off your loan on a settlement. That is a net increase of $85K!.
The other big reason to take a loan on a settlement is when you are in need of a surgery to get yourself healthy. Surgeries are a big part of the lawsuit process, and ultimately many people push off getting surgery because they cannot afford to stay home from work. Well by obtaining a loan on a settlement that problem no longer exists, and with cash to ride out your recovery you can take the necessary time to heal and rehab.
The other important part of this equation is that by getting the surgery the value of your case drastically increases, so like above the cost of taking a loan on a settlement is offset greatly by the increased amount of money you will receive now at settlement. Many insurance companies do not pay large sums of money on lawsuits if plaintiffs do not get surgery – their logic being that the injury must not be that serious if it didn’t require surgery.
Pros and Cons
The truth is there are many good reasons to take a lawsuit loan. But, the best news is the option is all yours. It is your money and you can use it for whatever you want or need. And this is something that you must stress to your lawyer. Reasons for taking out a loan on a settlement are endless, but here are just a few that might apply to your situation: facing eviction, pay utilities, pay education costs, take a trip, buy a car or fix a car that is broken, and generally just to pay any bills to reduce stress.
Now understanding the cons. The truth of the matter is that lawsuit funding is expensive. It is not a loan on a settlement as described above, but an investment of risk by a funding company. And if they are willing to take that risk, then you must have a good case, and they want to earn off of it.
The good news is that most funding companies today are very fair, and with recent regulation, the paybacks are typically reasonable.
Funding companies want you to make the most in the settlement, so they prefer only to extend a little portion of your total value of the case, 10-20% of potential settlement value at most. However, if your case drags the cost will go up and you will make less in the end.
That is the cost of needing the funds today, and you need to balance that decision out on your own. The most important thing is never taking more than what is needed and try to avoid taking too much money early in your case, as the costs go up the longer it goes. You can always take a little upfront to get you by, and if your current financial state changes you can always reapply for more.
In Conclusion
Legal-Bay lawsuit funding will continue to fund your case right up until your settlement, so you don’t have to worry about getting it all at once if it isn’t needed. Please visit our FAQ page or contact us for more information on how you can obtain a loan on a settlement.
