If you’re pursuing a personal injury lawsuit, the legal process can be long and expensive. While you wait for your case to settle, bills and expenses can pile up quickly.
Lawsuit loans and legal funding are two financial solutions that can help bridge the gap, but understanding the difference between them is crucial to making an informed decision.
What are Lawsuit Loans?
Lawsuit loans are a type of financing that provides plaintiffs with cash advances against their expected settlement or judgment amount. These loans are typically offered by specialized lawsuit lending companies.
Here’s how lawsuit loans work:
- You apply for a loan, providing details about your case.
- The lender evaluates your case and determines the loan amount.
- If approved, you receive the funds upfront.
- You’re required to make monthly payments, often at high interest rates.
- You must repay the loan even if you lose your case.
The main risks and drawbacks of lawsuit loans include:
- Sky-high interest rates that can exceed 100% annually
- Compounding interest that quickly inflates the total amount owed
- Required monthly payments that add financial strain
- The obligation to repay the loan plus interest regardless of the case outcome
In our experience, we’ve seen plaintiffs end up owing 2-3 times what they originally borrowed if their case drags on for years. Lawsuit loans can provide much-needed funds but can also become a major burden if you acquire one from a predatory or questionable company.
What is Legal Funding?
Legal funding, also known as pre-settlement funding, is a cash advance against your future settlement. However, it differs from a lawsuit loan in some key ways:
- There are no required monthly payments
- You only repay the funding if you win your case
- The funding is non-recourse, meaning the company cannot come after your personal assets
According to Credit Karma, settlement advance provides cash to cover living expenses and bills before a case is settled or a judgment is issued. It can be used for various needs, such as rent, mortgage, car payments, medical bills, or groceries, offering flexibility in its use.
So how does legal funding work? The process is simple:
- You apply for funding, providing case details
- The legal funding company reviews your case
- If approved, you receive your cash advance within 24-48 hours
- When your case settles, the funding company is repaid from the proceeds
The money you receive is yours to spend however you choose – on medical bills, living expenses, or anything else. And if your case is unsuccessful, you keep the money and owe nothing back. The funding company bears all the risk.
Benefits of Legal Funding
- No credit check required for approval
- No income verification or proof of employment needed
- Funding can be available in as little as 24 hours after applying
- Repayment only comes from the settlement, with no risk to personal assets
How Does the Legal Funding Process Work?
The legal funding process is designed to be simple and straightforward, allowing you to access the financial support you need quickly.
An experienced company like Mayfair Legal Funding will review your case and provide you with a personalized funding solution tailored to your specific needs, ensuring you have the resources to cover your expenses while pursuing your legal claim.
Applying for Legal Funding
The application process is quick and easy. You simply provide some basic information about yourself and your case, including:
- The type of case (e.g. car accident, slip and fall, medical malpractice)
- Your attorney’s contact information
- An estimate of your expected settlement amount
Importantly, applying for legal funding does NOT require a credit check or bank statements. The funding decision is based solely on the merits of your case.
Case Evaluation and Funding Decision
After receiving your application, the legal funding company will request case documentation from your attorney, such as medical records and the complaint. Their underwriting team then evaluates factors like:
- Liability (who was at fault for the accident)
- The extent and permanence of your injuries
- Your expected settlement or judgment amount
- The anticipated duration of your case
Based on this assessment, the funder will make you an offer for a cash advance, up to around 10-20% of your expected settlement amount. So if your case is likely to settle for $100,000, you may be eligible for $10,000 to $20,000 in funding.
Receiving Your Funds and Repayment
If you accept the funding offer, the money is typically wired to your bank account within 1-2 business days. The funds are yours to use as needed, with no restrictions.
When your case finally settles, your attorney repays the legal funding company directly out of the settlement proceeds before disbursing the remaining funds to you. If you lose your case and receive no money, you simply walk away and owe nothing. The funding company accepts the loss.
Factors to Consider When Choosing Between a Lawsuit Loan and Legal Funding
When deciding between a lawsuit loan and legal funding, it’s essential to consider several factors such as:
The Total Cost
One of the biggest factors to consider is how much the financing will cost you in the end. Lawsuit loans almost always end up being more expensive due to:
- Higher interest rates, often 3-5% per month
- Compounding interest charged on a monthly or semi-annual basis
- Long repayment periods while the case is pending
Suppose you take out a $10,000 lawsuit loan at 45% annual interest. If your case takes 3 years to settle, you could end up owing over $30,000 – more than triple the amount borrowed!
With legal funding, you don’t pay monthly interest. Instead, you repay the original advance plus a flat fee when your case settles. This fee varies but is typically around 25-50% of the advance amount. So a $10,000 advance may have a $5,000 fee, for a total repayment of $15,000 – much more affordable than a lawsuit loan.
Repayment Risk
Another key consideration is the risk of non-repayment. With a lawsuit loan, you must repay the full balance plus interest no matter what, even if you lose your case. The lender can come after your personal assets or garnish your wages.
But with legal funding, repayment is contingent on winning your case. If you lose, the funding is forgiven in its entirety. This makes legal funding much less risky for plaintiffs.
Impact on Your Case
Taking out a lawsuit loan can also negatively impact your case. The mounting debt may pressure you to settle quickly for a lowball offer rather than holding out for full case value.
In contrast, legal funding can actually strengthen your bargaining position. With money in the bank, you can afford to reject unfair offers and let your attorney push for a higher settlement.
Key Takeaways on Lawsuit Loans vs Legal Funding
- Lawsuit loans have high interest rates, monthly charges, and must be repaid regardless of the case’s outcome. Legal funding only gets repaid if you win.
- Legal funding approvals are based on case strength, not credit scores. Lawsuit loans may check credit and require collateral.
- Legal funding is non-recourse – the funding company cannot pursue you for repayment. Lawsuit loans are recourse debt that can put your assets at risk!
- Lawsuit loans can pressure you to settle for lower amounts. Legal funding lets your attorney fight for a better outcome.
Next Steps for Plaintiffs Seeking Funding for Their Case
Now that you understand the differences, you may be wondering how to choose the best legal funding company. Here are some tips:
- Look for a reputable funder with experience in your case type
- Read online reviews and testimonials from past clients
- Ask your attorney for recommendations
- Request quotes from 2-3 funders to compare pricing and terms
- Have your attorney review the contract before signing
At Mayfair Legal Funding, we pride ourselves on offering transparent, affordable funding with a streamlined application process. Our knowledgeable team is happy to walk you through your options and find a solution that meets your needs.
Call Mayfair Legal Funding Today for a Free Case Evaluation!
If you have a strong personal injury case and need financial support, we’re here to help. Call Mayfair Legal Funding today at (888) 357-1338 to speak with a legal funding specialist. We can review your case and provide a cash advance in as little as 24 hours.
Don’t let a lack of funds pressure you into accepting a lowball settlement offer for your injury claim. With Mayfair in your corner, you can pursue the full and fair compensation you deserve!
