A lawsuit settlement loan is suitable for individuals looking forward to receiving a class-action payment. This form of loan might look like a quick solution to solving financial woes.
In a real sense, the lawsuit settlement loan provides a cash advance for pending settlement awards or lawsuit judgement. As a borrower of this loan, you’ll be expected to pay back the loan once the funds from the settlement have been disbursed. The interest on the loan will continue to accrue while the loan is still outstanding. In most cases, the interest on the loan is always on the high side.
Some people might look at the lawsuit settlement loan as an agreement for obtaining funds in anticipation of winning a settlement or lawsuit award, but that is not all. Often, plaintiffs can arrange advance funding from funding companies that offer cash in exchange for a portion of the ultimate recovery.
The term “Lawsuit Loan” is sometimes referred to as advance funding arrangements or borrowing. But the truth is that the legal structure of those two arrangements all differs. In a legal sense, the lawsuit settlement loan is a borrowing.
A lot of people who use these loans always complain of the interest as being high and can even eat a chunk of the settlement proceeds. The business of settlement loans has been poorly regulated in places like the united state because it is relatively new.
So without us wasting much time, let us look at some major things like who needs a lawsuit settlement Loan or advance funding?
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Lawsuit Settlement or Advance Funding- Who Needs this?
The Lawsuit Settlement loan is for victims of personal injuries, such as a traffic accident, or even medical malpractice. An incident like this can take months or even years for one to go to trial and receive a settlement.
Most lenders or financial institutions that offer such specialized finance, sometimes offer cash to the plaintiffs in personal injury suits and civil rights discrimination or even their heirs waiting for a settlement, in the case of those who lost their loved one and want to claim their estate or property.
While one is waiting for the time trial will commence, the plaintiff might not be able to work in the meantime, this alone can result in the loss of income. But cash for a lawsuit loan or advance funding can help you tide over in the meantime.
Most people have complained of their bills piling up, and they find it difficult to even save anything which they can use to solve other financial predicaments that may arise. Finding themselves in such situations, a lawsuit settlement loan or advance funding arrangement is their only way forward. This funding has proven to be helpful to many of them despite the hike in interest.
Some even consider it an oasis in a cash-dry desert. While you see this as a solution or an option for your financial predicaments, it is also important to carefully weigh all of your options before you undertake one of these arrangements.
How Do Lawsuit and Advance Funding Work?
For lenders to borrow from a plaintiff, they need to conduct some evaluation on the borrower in other to know the creditworthiness of the plaintiff, as well as the likelihood of settlement or lawsuit recovery before making a loan.
This assessment is being conducted by the company to ensure that they don’t lose their money as a result of the loan they gave out. So what they do is evaluate the litigant’s creditworthiness but solely rely on the assessment of the anticipated recovery, which makes it often easier for them to either give you advance funding or a lawsuit settlement loan.
If your credit score is low for any reason, it may be easier to obtain or arrange for advance funding rather than a lawsuit settlement loan.
With the settlement loan, it is expected of the borrower to repay back an equal amount to the borrowed cash plus interest for the period that the borrowing is outstanding. But with an advance funding arrangement, the amount or percentage of the ultimate award that the funder will receive is fixed at the outset.
The litigant contracting for advance funding generally has no personal liability; if the litigant loses the lawsuit or the ultimate award is not sufficient to meet the full amount that the funder expected, the loss is borne by the funder, not the litigant. This doesn’t mean that the terms are always fixed.
The terms and conditions for such a loan differ, this is why you can see cases where the recovery of the plaintiff is reduced drastically as what is to be expected as a result of interest or a portion of the award.
Why Is the Lawsuit Settlement Loan Having a High Cost and Minimal Regulation?
If you remember well, I made mentioned this form of financing not being regulated as a result of it being a relatively new form of financing in the United State.
Both the Lawsuit Settlement loan and advance Funding have proven over the years to be costly financing options. Most of these pre-settlement loans are generally subject to regulations that are applicable to all debt financing. In most jurisdictions, regulations specifically directed at either of these financing methods are minimal or non-existent. These arrangements are not subject to the type of targeted laws and regulations which provide consumer protections for mortgages, automobile loans, and other individual borrowings.
These loans usually eat up a large percentage of your settlement money which you’re owed as a result of its significantly high interest.
In some cases, you can see an interest rate of up to 27% to 60% a year. This means that the funding company can take a large chunk of your money when you recover it. At the end of the day, you might find yourself owing more loan interest than your actual settlement amount. This interest for these loans is usually compounded monthly.
Advance funding on the other hand does not impose any future liability on the borrower. However, the share of proceeds for which the funder has priority over the litigant also may leave the litigant with very few proceeds from a settlement or award.
Does Government Suits Challenge Lawsuit Loans?
This form of financing has stirred up so many concerns and this has made a lot of people ask questions about this form of financing.
According to Investopedia. As of February 2017, New York’s attorney general and the Consumer Financial Protection Bureau alleged that one lender scammed sick Sept. 11 responders and former NFL players who sustained concussion injuries with costly lawsuit loans in advance of settlement. According to authorities, the lender used unethical tactics, charging interest rates as high as 250% and exorbitant fees. The lender collected millions of dollars on settlement loans.
Conclusion/ Final Verdict
For any reason, if you find yourself looking to apply for a lawsuit settlement loan or even advance funding, you need to take your time to assess it to be sure that the loan offer is for you.
As I have mentioned severally in this article, these loans are costly and they lack some regulations by the federal and state authorities.
As a victim of personal injury who is struggling to keep up with the payment of bills, it is very important to consider other sources of financing before taking such loans. This loan should be your last option.
If all else fails, borrowing from your 401(k) or other retirement accounts might be considered. While this should be viewed carefully (a loan from a 401(k) can result in lower retirement income), it may prove less costly and less risky than poorly regulated, high-cost alternatives.
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