Pre-settlement funding, also known as lawsuit loans or legal funding, offers financial assistance to plaintiffs while they await the resolution of their legal cases. Despite its growing popularity, many misconceptions surround this form of financial aid. This article aims to debunk the common myths and misconceptions about pre-settlement funding and provide a clear understanding of its benefits and drawbacks.
Pre-Settlement Funding: A Brief Overview
Before diving into the misconceptions, it’s essential to understand what pre-settlement funding is. Pre-settlement funding provides cash advances to plaintiffs in ongoing legal cases. The funding company purchases a portion of the future settlement or judgment, allowing the plaintiff to access funds before the case concludes. Pre-settlement funding can be a lifeline for plaintiffs facing financial hardships, helping cover medical expenses, rent, or other necessities.
Myth #1: Pre-Settlement Funding Is a Loan
One common misconception is that pre-settlement funding is a loan. In reality, it’s a non-recourse cash advance. This means that plaintiffs are only required to repay the advance if they win their case or reach a settlement. If the plaintiff loses, they owe nothing to the funding company. This risk factor differentiates pre-settlement funding from traditional loans, which always require repayment regardless of the outcome.
Myth #2: Anyone Can Qualify for Pre-Settlement Funding
Another misconception is that anyone involved in a lawsuit can qualify for pre-settlement funding. In truth, funding companies carefully assess each case before granting an advance. Factors considered include the strength of the case, the potential settlement amount, and the likelihood of a favorable outcome. The underwriting process ensures that funding companies only invest in cases with a high probability of success.
Myth #3: Pre-Settlement Funding Companies Charge Exorbitant Interest Rates
It’s a common belief that pre-settlement funding comes with sky-high interest rates. While it’s true that funding companies charge fees, they are not technically interest rates. Instead, they charge a funding fee based on a percentage of the anticipated settlement amount. The fees can vary depending on the case’s complexity and duration, but reputable companies will be transparent about their fee structures and work with plaintiffs to ensure they understand the costs involved.
Myth #4: Pre-Settlement Funding Will Affect Your Credit Score
Some people mistakenly believe that applying for pre-settlement funding can negatively impact their credit score. However, pre-settlement funding does not involve a credit check and has no bearing on your credit score. Funding companies focus on the merits of your case, not your credit history or financial background.
Myth #5: Pre-Settlement Funding Results in a Smaller Settlement Amount
Another misconception is that accepting pre-settlement funding will result in a smaller settlement. While it’s true that you will need to repay the funding company from your settlement proceeds, this does not directly reduce your settlement amount. In fact, having access to financial resources through pre-settlement funding can reduce the pressure to settle quickly, allowing you to negotiate for a fair and just settlement. By providing financial stability during the legal process, pre-settlement funding can help plaintiffs avoid accepting low-ball offers from defendants.
Myth #6: Pre-Settlement Funding Is Only for Personal Injury Cases
Many people believe that pre-settlement funding is exclusive to personal injury cases. While it’s true that personal injury cases often receive funding, it’s not the only type of case that qualifies. Funding companies may also consider other types of cases, such as employment discrimination, wrongful termination, medical malpractice, and product liability cases. Each funding company has its own criteria, so it’s essential to research and find a company that specializes in your type of case.
Myth #7: The Application Process Is Long and Complicated
Some individuals may be deterred from applying for pre-settlement funding due to the belief that the application process is time-consuming and complex. In reality, the application process for pre-settlement funding is relatively straightforward. Plaintiffs typically need to provide information about their case, attorney contact details, and any relevant documentation. Reputable funding companies work efficiently to review the application and, if approved, can often disburse funds within 24-48 hours.
Pre-settlement funding can be a valuable financial tool for plaintiffs awaiting the resolution of their legal cases. By debunking these common misconceptions, we hope to provide a clearer understanding of pre-settlement funding and help plaintiffs make informed decisions about whether it’s the right option for their situation. As with any financial decision, it’s crucial to thoroughly research and consult with a trusted attorney or financial advisor before deciding on pre-settlement funding.