As an injured plaintiff, things can get expensive. Thankfully, personal injury attorneys generally work on contingency. However, if you were hurt in an accident and are unable to work, your daily expenses can themselves give you trouble.
This is a reality that a lot of defendants take advantage of. Often, personal injury plaintiffs are up against an insurance company defendant. Their goal is to minimize your settlement and pay it out as far in the future as possible.
The last thing you want is to be put into a situation where you have to settle early just to pay your mortgage, rent, or groceries. That’s where pre-settlement funding can help. With lawsuit loans, the funding company basically purchases a portion of your lawsuit in exchange for payback if the case settles favorably.
Choosing Between Lawsuit Funding Companies
But finding the right pre-settlement funding company can be stressful. There are certain factors that you should be on the lookout for. While the right lender can be your saving grace, choosing the wrong one could be a disaster. There are always people looking to profit from your misfortune, and a bad deal could mean you are left with almost nothing after your settlement.
The first thing you should do is cast a wide net. Contact several pre-settlement funding companies and ask them about their rates and fees. The more specific they can be, the better. This is also a chance to test the professionalism of the companies.
After you’ve narrowed down your options, bring your lawyer in. If they have recommendations, ask why they like to work with the company they recommend. As a plaintiff, all you should focus on is paying the lowest rates possible.
Questions to Ask Funding Companies Before Applying
In the middle of the above process, you’re going to have to dig deep into the companies to really find out who the best option is. While everyone’s situation and needs differ there are a few questions that everyone is going to need to ask.
- Do they offer non-recourse funding?
- What rate do they charge?
- What type of rate do they use?
- Are they a broker or a direct funder?
If they cannot answer or refuse to answer these questions, thank them for their time and hang up. That is a sure sign that this is a less-than-legitimate operation and would be putting yourself at risk. Here’s why each of these questions is crucial to finding the right lender.
- Do They Offer Non-Recourse Funding? – No recourse funding means that you only pay if you win. If they do not offer this, then they are basically just offering you a personal loan. Do not work with a lawsuit funding company unless they offer this.
- What Are Their Rates? – Almost every funding company will give you a range. It’s important to note that they are most often giving you a monthly compounded rate. Beware of any company that says a range as wide as “one to three percent” because that’s a huge range on an annual basis (13% to 43% in the first year, 27% to 103% in the second year) and doesn’t really give you any helpful information about what you will payback.
- What Type of Interest Rate Do They Use? – The two options are simple and compounding. Simple means that your interest is only based on the principle advanced. Compounding means that as the interest adds up, you’re being charged based on this new amount. This is not an issue of legitimacy, but it can make a huge difference in how much you pay back, especially if your case settles in more than a year.
- Are They a Broker or a Direct Pre-Settlement Funding Company? – A broker is someone that connects plaintiffs to other funding companies. Essentially, they are a middleman. While this isn’t necessarily a bad thing, brokers usually work off commission. They are not concerned with finding you the best opportunity, but simply getting you to sign the deal. If you’re having trouble finding funding on your case, a broker can be a helpful tool. It’s important to agree on terms BEFORE you start working with a broker. Some legal funding brokers charge up to 20%, and that amount is rolled into your contract so that you pay “interest” on it.
What Rates Do the Best Legal Funding Companies Charge?
Funding companies are largely unregulated and can charge whatever they like for funding. It is important to be extremely wary of high rates and unfavorable terms.
Look for a funding company that charges simple, non-compounding rates. Many leading funding companies charge 3% monthly compounded with substantial fees (10 – 20%). That means you’re paying back almost double what you were given within the first year.
Look for simple, semi-annual rates below 25%. That means you’re paying back less than 50% in one year. This is still very expensive money, but in our experience, 90% or more contracts in the legal funding industry charge more than 50% in one year.
However, when considering interest rates, be aware of hidden fees. If one company offers a 20% rate with a few fees, and another offers 22.5% with lower fees, the slightly higher rate may be worth it.
With a reputable funding company, these fees should not be hidden. They should be clearly laid out in the contract, or even communicated during the initial inquiry. But at first glance, you may miss some. Try to do the math on the contract yourself. If you can’t come up with the same numbers they did with the figures on the page, steer clear!
Watching Out for Lawsuit Loan Sharks
Loan sharks are a reality. Among the thousands of legal funding companies you can choose from, there are bound to be some looking to take advantage of the unaware. There are a few red flags that you should be on the lookout for. If any of these come up, find a new lender.
- High Pressure Early On – A proper lending company knows that you will want to go through everything with your lawyer. Yes, they want to make a deal, but they want to do it the right way. If the representative you call during your initial research is trying to push you into anything, hang up.
- Not Answering Questions – If they refuse to answer any of your questions, that’s a bad sign. Especially when it comes down to interest rates and fees, they should not be withholding anything. Some companies try to hide this information until your desperate for the money.
- Confusing Contract – Within a minute of looking at your contract, you should know what you will pay back, what rate is charged and what fees are charged. If you can’t do the math to confirm their payoff numbers yourself or with the help of your attorney, DO NOT SIGN.
The easiest way to avoid loan sharks and scams is to start early. Give yourself plenty of time. if you’re in a rush to pay off bills, a loan shark with a jump on it to push you into a bad deal.
Provident Lawsuit Loans
At Provident Lawsuit Loans, we offer some of the lowest interest rates in the industry with $0 upfront fees. We want to make sure you hold on to as much of your settlement as possible.
In addition, we offer a no-win / no-pay guarantee. Like any good funding company, we don’t get paid unless you do. It’s a part of our philosophy of plaintiff empowerment. We strive to make justice accessible to everyone, not just those who can afford it.