The Ins and Outs of Pre-Settlement Funding

Michigan lawsuit loan professionals
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Lawsuit funding basics

There are many things to learn when considering pre-settlement funding and whether it’s right for them. This post is geared to help you navigate the what, why, and how in pre-settlement financing to better understand what it is and if you need it.

For those unfamiliar, pre-settlement funding is a type of funding or loan available to people who have been injured and are suing the party responsible for their injuries. You may be asking, ‘why does a person need funding or a loan while they’re suing the other party? Aren’t I meant to be getting compensation from the other side?’ While that is technically true, but sometimes cases can go on longer than anticipated. If you have expenses that need to be paid, an interruption in cash flow might be a stressful experience.

The criteria for who can avail of pre-settlement funding essentially boils down to those who are:
– Injured in an accident that was caused by someone else.
– You intend to sue those responsible and have hired a lawyer.
– In need of money to cover living expenses while waiting for their case to be resolved.

Not everyone needs to get pre-settlement funding, and usually, it’s better to explore other funding options. But it’s comforting to know that if the other options don’t work out, you can investigate pre-settlement funding to get you by in the meantime.

What types of pre-settlement funding exist?

‘Pre-settlement funding’ is an umbrella term for different types of financial options. For example, you can get purchase agreements, settlement loans, and a kind of arrangement known as a spring-forward agreement.

The difference between these three agreements is as follows:
Purchase agreements: These agreements will section off a portion of your settlement in exchange for funding in the initial stages of your case.

Settlement loans: These are similar to traditional loans; however, they’ll allow you to have access to money quickly. However, settlement loans are often required to be paid regardless of the case’s outcome.

Spring forward agreements: These agreements are less well known. In simple terms, this works by you selling a portion of your settlement on a future date for an agreed price. You may have to report the sale proceeds as income, but this won’t be until your case is settled.

How do companies decide who can get pre-settlement funding?

As we know, those waiting for the outcome of a lawsuit can avail of pre-settlement funding. However, more conditions need to be met to get your funds successfully. The company will ask you for details about you and your case. They’ll also want to know who your attorney is and their contact information.

After they get this information, they’ll investigate the likelihood of your case succeeding and estimate the value of your settlement. One of the benefits of this approach is that your credit score won’t be taken into account. So, if you have poor credit, it’s likely not to be an issue. Additionally, it has the added benefit of speed. As you’re not waiting around for credit bureaus to do their checks, you will have an answer and your funding much faster.

What can I use my funding for?

If you’re unable to work due to your injuries, it might be a stressful time considering how you will be paying bills. Luckily, pre-settlement funding will help to pay some of these expenses in the meantime. These might be bills such as medical, rent, gas, electricity etc. You can also use the funding to pay credit cards or car bills. Something to keep in mind is that you can’t pay legal fees with your financing.

What are the benefits of pre-settlement funding?

The most significant benefit of getting pre-settlement funding is that you’ll have quick access to money which will help you with your everyday expenses while taking time to recover and sort out the other legal matters that come with accidents. However, there are other reasons pre-settlement funding is helpful.

An unusual but significant benefit of pre-settlement funding is that you’ll have more time to negotiate your settlement with the other side. Sometimes, the other side will rely on people’s desire to settle quickly as money concerns mount. You and your attorney will have more time to get the best settlement when you don’t have these concerns to worry about.

As mentioned above, you don’t need a good credit score as the funding depends on your case and not your credit history. Just because someone has bad credit doesn’t mean they should settle quickly and for less than they would have gotten otherwise. The lack of a credit check means that approvals take less time, and the money will arrive in your bank account much sooner, allowing you to take care of your expenses sooner.

How do I pay my pre-settlement funding back?

There are two ways funding is usually paid back. First, you might opt to pay it off in one chunk when the settlement from your case comes through. Making a one-off payment is a good way of reducing the number of payments you’d make to the company. The downside is that you’ll have to pay a more considerable amount in one go which may not suit some people.

Alternatively, you can opt to pay every month. This type of agreement is usually structured as a traditional loan. This arrangement will suit someone who would like to make smaller payments instead of a one-off large payment.

In either case, make sure you’re aware of the charges that apply when you pay monthly vs. paying it all in one go. Your agreement will contain this information.

What if my case doesn't go to plan?

With personal injury cases, nothing is certain. Sometimes things don’t work out as planned. The case might not be successfully resolved, and you won’t receive a settlement, or your compensation might be less than initially anticipated.

Regardless, you might be wondering what happens to your repayments. This is a valid concern and relies mainly on how your agreement is structured. The agreement is the paper your sign either in person or electronically before you get your funding. It’ll outline the conditions of the funding, how to repay, and what charges apply. It’s essential to read this closely as these conditions bind you and the company.

If you have a funding agreement where the money is repaid from your settlement as one big chunk and your case results in getting no compensation, you might not have to pay anything back. However, if your agreement is structured as a loan, you might have to pay it back in installments.

If your settlement is less than initially expected, the company won’t always demand that you pay the difference. Instead, they’ll likely ask for what is left over after all other expenses have been paid. These include the medical and attorney expenses.

When in doubt, always check your agreement and note these conditions as they’ll determine how your funding is paid back. It would help to record the charges that apply before signing and make sure they’re suitable for you.

Final things to keep in mind when considering pre-settlement funding

Pre-settlement funding may be the best option for some. But it can attract charges that might make it not suitable for others. Therefore, it makes the most sense if you cannot get other types of funding to carry you through this phase. However, it would be best to explore other options such as traditional loans or borrowing from family/friends as you might get a great interest rate or, even better, a 0% interest rate.

Should you be in a position where this is the only option, don’t be afraid to shop around for the best rates. Lawsuits often carry on for a long time, and charges may add up quickly, so it’s a good idea to save where you can. Finding a company that provides the lowest rates will help in the long run. Don’t be afraid to call companies and ask about their rates and create comparisons.

Please read your agreement carefully and highlight or note any important details like the interest rate, fees, payment schedules, etc. In addition, you should always be advised of your entitlement to cancel the contract in the days after signing. If you don’t get this information, reach out to the company, and ask for it.

Next Steps in the lawsuit funding process

Overall, the most important thing throughout this process is to minimize stress and focus on getting better. Pre-settlement funding may help ease financial worries. However, as long as you are armed with the correct information, you should be ready to explore all available options.

When considering a litigation cash advance, make sure to clarify your options and expectations. Getting funding in Detroit doesn’t need to be complicated and certainly does not need to take too much time.  Call our Michigan lawsuit funding firm today for a free consultation. Litigation Funding, LLC will beat any quoted rate. As the cheapest litigation funding company in Michigan, we’re confident that you’ll receive the money you need at the best rates possible. 

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