Factors to consider before taking up pre-settlement funding from lawsuit funding companies

15 Dec Factors to consider before taking up pre-settlement funding from lawsuit funding companies

When you are in the middle of a pending lawsuit and you need money, there are various ways you can source the funding that you need. You could borrow from family and/or friends, try to apply for a loan in a bank, sell your assets, and many other methods.

However, each of these methods carries its own disadvantages, and sometimes they may not be valid options. For instance, you could already be servicing another loan and/or have a limiting credit score which precludes you from getting another bank loan. Or maybe you require more money than your family and friends can afford to put up. This is where legal funding can help you.

Legal funding has two major advantages – it provides the cash that plaintiffs need to take care of growing expenses instantly, and also, it is a non-recourse funding method. The latter means that if the lawsuit is lost, the funding company will not hold the plaintiff to the cash advance.

Even though they seem to make everything relatively simple for plaintiffs, much like any other financial move, a plaintiff must carefully examine his options before deciding to take up this loan.

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   Do you have less expensive alternatives?

Just the same way you would prefer a lower interest loan over a higher one, you need to eliminate other less expensive alternatives from your list before applying for legal funding. The fees are quite high, especially because this is a non-recourse cash advance, which means that the lender bears all of the risks of lending to a plaintiff if the suit ends in a loss or insufficient settlement.

2. Duration of the lawsuit

Very often personal injury cases are litigated for months, even years, which means that the longer it takes for the lawsuit to be settled or awarded, the higher the fees due on the amount. Talk to your attorney to get a rough idea of how long the lawsuit might take, and then weigh that against the expenses you will have in that time so that you know how much you need to borrow. Don’t borrow a lot just because you can, since the more you get, the more you have to pay back at the end.

3. Subsidize your expenses

In order to limit the amount you borrow from lawsuit funding companies, ask your attorney whether you qualify for any other sources of cash in the meantime. Some of these include disability payments, employment termination benefits for the next of kin (for wrongful death suits), or even assistance from relatives and friends.

This way, you borrow a lesser amount so that you have less to pay back once the case is settled or awarded.

4. Find a reputable company

Just like your regular loan, it’s important to research the legal funding companies available before deciding who to go to. The first place to start would be with your lawyer, who probably knows a few companies and can point you in the direction of a reputable company and also help you to negotiate for yourself the most favorable terms.

Even then, shop around with a few funding companies so that you know who has the best terms. You can also turn to the American Legal Finance Association were the signatories agree to abide by certain best practices.