Legal battles can be emotionally and financially draining. Whether you’re navigating a personal injury case, a lawsuit related to employment discrimination, or a medical malpractice claim, the wait for a resolution can take months, sometimes even years. During this period, many plaintiffs struggled to keep up with mounting bills, daily expenses, and the costs associated with their legal proceedings. That’s where settlement funding comes into play.
Settlement funding, also known as loans on settlement, can provide plaintiffs with the financial relief they need to stay afloat while waiting for their case to reach its conclusion. But before deciding if settlement funding is the right option for you, it’s essential to understand what it is, how it works, and how to make an informed decision.
What Is Settlement Funding?
Settlement funding is a type of financial assistance provided to plaintiffs in lawsuits before their case is resolved. It’s often referred to as a loan on the settlement because the funding is secured against the potential settlement or judgment in the case. Essentially, plaintiffs receive a cash advance based on the expected outcome of their lawsuit.
Unlike traditional loans, settlement funding is a non-recourse loan, meaning if you lose your case, you don’t have to repay the money. This is what makes it distinct from a conventional loan, which requires repayment regardless of the outcome of the case.
The amount you can receive from settlement funding will depend on the strength of your case and the anticipated settlement or award. The goal of settlement funding is to ease the financial burden during the waiting period, so you don’t feel pressured to accept a low settlement offer just to cover your immediate expenses.
How Does Settlement Funding Work?
The process of obtaining settlement funding is relatively straightforward, but it involves several key steps:
- Eligibility and Application
To qualify for settlement funding, you must be involved in an ongoing lawsuit. The funding company will typically assess the strength of your case and the likelihood of success. The better your case looks in terms of potential settlement, the more funding you may be able to receive.
The application process is simple. You or your attorney will submit details about your case, including the nature of the lawsuit, how long the case has been ongoing, and any supporting documents. Your attorney plays a crucial role in this step since they will verify the details of your case.
- Approval and Offer
Once the application is submitted, the funding company will evaluate the case. They will review the potential value of the settlement and make an offer based on their findings. If approved, the funds are typically disbursed quickly, often within 24 to 48 hours.
Because settlement funding is secured by the expected settlement amount, lenders are more concerned with the merits of your case than your credit score or financial history. This means that people with poor credit or limited financial resources may still qualify for settlement funding.
- Repayment
Repayment of settlement funding occurs only if you win or settle your case. Once your case is resolved and you receive your settlement, the amount borrowed, plus any applicable fees or interest, is deducted from the settlement amount. If you lose the case, you are not required to repay the funding. This non-recourse nature of settlement funding makes it a low-risk option for plaintiffs.
The Benefits of Settlement Funding
Settlement funding offers several key advantages, particularly for plaintiffs who are experiencing financial stress while awaiting the resolution of their case.
- Financial Relief During a Lengthy Legal Process
One of the primary reasons people opt for loans on settlement is the immediate financial relief it provides. Lawsuits can be drawn-out affairs, often taking months or even years to resolve. During this time, plaintiffs may struggle to pay bills, medical expenses, or living costs. Settlement funding offers a way to ease this burden and ensure that plaintiffs don’t have to accept a low settlement offer simply because they can’t afford to wait.
- No Monthly Payments
Unlike conventional loans that require monthly payments, settlement funding does not require regular repayments. The loan is repaid only if you win or settle your case. This can help reduce financial stress during the lawsuit, allowing plaintiffs to focus on the case itself instead of worrying about making monthly loan payments.
- No Impact on Your Credit
Because settlement funding is based on the strength of your case and not your credit history, it does not impact your credit score. This can be a significant benefit for individuals who may have poor credit or are unable to secure traditional loans due to financial difficulties.
- No Risk if You Lose the Case
The non-recourse nature of settlement funding means that if you lose your case, you won’t owe anything to the funding company. This provides peace of mind, as it ensures that you don’t take on additional financial risk by obtaining funding for your case.
- Faster Access to Funds
In many cases, loans on settlement can be disbursed quickly, often within a day or two. This can be especially important if you’re facing an urgent financial situation, such as medical bills or the risk of eviction. Traditional loans may take weeks or even months to process, but settlement funding is designed to provide faster access to cash.
Things to Consider Before Pursuing Settlement Funding
While settlement funding offers numerous advantages, it’s important to consider a few potential downsides before deciding if it’s the right option for you.
- High Costs
One of the primary drawbacks of settlement funding is that it can be expensive. Since settlement funding is a form of high-risk loan for the funding company, they often charge higher fees and interest rates than traditional loans. These costs can significantly reduce the amount you receive from your settlement after repayment.
- Impact on Your Final Settlement
The amount you borrow through loans on settlement will be deducted from your final settlement or judgment. Additionally, any fees and interest charges will also be deducted from your settlement proceeds. This means that while settlement funding provides immediate relief, it will reduce the total amount of money you ultimately receive.
- Not Available for All Cases
Not all legal cases qualify for settlement funding. Funding companies typically focus on cases with a high probability of success, such as personal injury lawsuits or other civil cases with clear liability and damages. If your case is complex or uncertain, you may not qualify for funding.
- Lender Reputation
It’s crucial to work with a reputable funding company. There are many companies offering loans on settlement, but not all of them have fair and transparent terms. Take the time to research lenders, read reviews, and consult with your attorney to ensure that the terms of the loan are fair and that the lender is trustworthy.
When Settlement Funding Makes Sense
Settlement funding can be an invaluable tool in the right situations. Here are some scenarios where it might make sense to consider loans on settlement:
- Personal Injury Cases: If you’ve been injured in an accident and are unable to work, settlement funding can help cover medical bills, living expenses, and lost wages while waiting for your case to be resolved.
- Medical Malpractice: If you are pursuing a medical malpractice lawsuit and need funds to cover ongoing treatment or other costs, settlement funding can help bridge the financial gap.
- Employment Disputes: In employment-related lawsuits, such as wrongful termination or discrimination cases, settlement funding can provide financial relief as your case progresses.
- Product Liability: Plaintiffs in product liability cases can use settlement funding to pay for necessary expenses while waiting for a settlement or judgment.
Settlement funding and loans on settlement can be a financial lifeline for plaintiffs who need immediate funds while awaiting the outcome of their lawsuit. These loans offer a way to avoid financial strain and allow you to focus on your case without the constant pressure of mounting bills. However, it’s essential to carefully consider the potential costs, impact on your settlement, and the reputation of the lender before committing to settlement funding. With the right understanding and approach, settlement funding can be a valuable tool for navigating the often lengthy legal process.