Anyone who files a personal injury lawsuit will obviously need money. Most of the plaintiffs try taking pre-settlement funding to pay for the expenses related to the lawsuit since pre-settlement loans allow you to borrow money before you’ve won your case. But there are several reasons why these loans can be expensive and difficult to acquire
Pre-settlement funding is expensive because it comes with a non-recourse feature.
Pre-settlement loans are much more expensive than other types of loans because they’re non-recourse. That means the lender will not ask for repayment if you don’t win your case. This puts all the risk of the lawsuit funding company. Since the odds of winning a lawsuit are typically less than 50%, it’s not easy to determine at the very beginning whether you will win the case or not. Many times, pre-settlement funding companies consider some cases as strong but ultimately end up losing the case because of many unforeseen reasons. Because the pre-settlement funding company has no control over the lawsuit’s outcome, they are taking a risk by offering cash advances; therefore, it’s no wonder these loans are so expensive.
Pre-settlement loans are expensive because the value of a lawsuit reduces over time.
The value of your lawsuit will reduce the longer it takes to settle, which means that waiting too long can actually cost money to lawsuit funding companies. Banks and other lending institutions typically charge interest rates on the loans they offer; interest rates vary depending on the type of loan and the creditworthiness of the borrower, like the collateral they submit. But lawsuit loans require no collateral, and your litigation act as collateral; since the value of the litigation goes down over time, lawsuit funding companies keep the interest rate high.
Brokerage fees involving pre-settlement funding make them expensive
Most lenders in the lawsuit lending industry have to pay a brokerage fee to the middle man, “brokers.” The broker charges a fixed commission from the lender to provide them leads and work to speed the cash advance process. There are also transaction fees for any other services (such as document preparation) that may be required. If you borrow $5,000, you will have to pay $500 for the loan origination and up to another $200 in transaction fees. For most people who are looking to borrow money quickly before their settlement is finalized, this high cost can be devastating. It means they’ll only receive around $4,000 of the money they borrowed or less because of how much goes towards fees.
Underwriting/Application Fees Makes Them Costly
The most common fee associated with lawsuit funding is the underwriting/application fee. This fee can be anywhere from 5%-25% of the lawsuit loan proceeds and is paid upfront as part of the application process. The underwriting/application fee covers the cost of a third-party processor to process your application, review your suitability for a lawsuit loan, and prepare all necessary documents for closing (including any legal documents). This can be costly because these processors must comply with regulations that require them to do an extensive background check on you and your case before processing any paperwork. The average processing time for pre-settlement loans is about two weeks, which means there are some costs associated with paying a processor to wait around while they assess your suitability for a loan.
Compound interest increases the cost of pre-settlement loans
Your lender charges compound interest when you borrow money to get a lawsuit loan. This means that you owe interest for the amount of time that you have borrowed the money and any interest accrued in between payments. This is much more expensive than traditional borrowing rates because it can lead to situations where the borrower never pays off their debt and continues to rack up more and more in unpaid fees.
Worried! Need Low-Cost Pre-settlement Loans?
After reading about the cost of pre-settlement funding, we understand that you are worried about whether you should apply for it or not. It totally depends on the plaintiff’s current scenarios; if you are in urgent money right now for critical surgeries or mortgage but cannot wait for years “for settlement.” Pre settlement funding is a good option because you don’t have to pay anything right now and only after winning the case, making it the most interesting option available. We at ECO pre-settlement can fund your case with a low-interest rate in the legal funding industry. The only catch is that you must have a strong personal injury lawsuit case.