The following information should help an individual select the right legal funding company for financial assistance during a lawsuit. There are currently few regulations on such companies, so some lenders may try to take advantage of unsuspecting plaintiffs by charging exorbitant rates or hidden fees. With the information provided here, an individual can make an informed decision when applying for legal funding.
Educate Yourself on the Legal Funding Industry
To make the right decision, it helps to have a working knowledge of how legal funding works. It is also important to note that legal funding may go by different names such as lawsuit funding, litigation funding, and lawsuit loans. All of these terms refer to a funding contract that allows a plaintiff to have early access to some of the lawsuit’s expected settlement proceeds before the case ever reaches a verdict or settlement.
In general, victims of medical malpractice cases, product liability, or personal injury are the people seeking funds for their lawsuits as quickly as possible. If a third-party funding company believes that a case has sufficient merit, it will likely release a cash advance if there has been no prior funding or if additional funding room is available.
The financial provider receives repayment through the plaintiff’s lawyer after the lawsuit settlement award arrives. Every plaintiff’s circumstance is unique, so each contract is custom-designed for that situation. In general, though, the original cash advance amount gets repaid along with the agreed-upon amount of interest. Should the case not end in the plaintiff’s favor, however, no repayment whatsoever is required. This is considered non-recourse legal funding.
Information to Know Before Applying
Signing a contract for legal funding is an essential decision that a plaintiff should not go blindly into just because they need money immediately. Instead, they should endeavor to learn all pertinent details that will lead to an informed, rational decision. Financial desperation should not be the primary motivating factor. Below are some essential questions to ask when considering lawsuit settlement funding.
- Must the funds be repaid even if I lose?
If a lawsuit funding company answers yes to this question, the plaintiff should find a different company. Reputable third-party funders will provide the money with the understanding that repayment will take place only if the case is won or settled in the plaintiff’s favor. Upon due diligence, a legitimate funding company will adequately determine whether or not to take the risk.
- How long might it take for a case to settle?
This question can best be answered by discussing with the lawyer and the funding company, as many factors determine the length of the lawsuit. If it appears that the lawsuit will be very lengthy, possibly years, the plaintiff will need to carefully consider the amount of interest that will be continuously mounting until the case is over. This factor must be accurately weighed against the need for finances upfront.
- Must the Attorney be Involved?
Attorneys should always be involved when considering funding for a lawsuit. If a funding company informs a plaintiff that the attorney does not need to be included, the applicant should walk away from this funder. For one thing, no one knows the strength or weakness of a case like a lawyer who is handling it. The attorney needs to provide details about the case to the funding company for the funding specialists to calculate the risk involved accurately.
No reputable funding company with an appropriate evaluating process will provide finances without talking with the lawyer involved. Likewise, though, a plaintiff should find out if the attorney has any relationship with the funding company or gets some sort of referral fee.
- What does the funding company charge, and are there fees?
If a funding company charges a non-refundable application fee, it might be advisable to seek a different company even if the application is denied. Most funding companies require no fees when submitting an application. Additionally, it would be wise to get an itemized breakdown of all fees that the funding company may charge you in addition to the interest amount on the funds.
- How is interest on the cash advance calculated?
Some companies apply regular, simple interest to their cash advances. This type of interest accrues daily on the principal amount provided. The best option for repayment is typically simple interest added to the principal.
There is also, however, another form of accrual known as compound interest. This type of accumulation is fantastic if it is being added to one’s bank account balance. When applied to a loan, though, it is not so desirable. This method requires that one repay interest on the cash advance, plus pay interest on the interest that has accrued.
Beware of Loan Sharks in the Legal Funding Industry
Unfortunately, there are funding companies that will take advantage of victims looking for financial assistance. Some of the red flags to watch for are companies that:
- Use high-pressure tactics very early
- Will not answer questions raised
- Have a confusing contract
Do not fall prey to unscrupulous loan sharks. Even if pressured by mounting bills, allow time to find the right financial provider.
Check the Funding Company’s Online Reviews
Before contacting any settlement funding company, read its reviews. Of course, every funder will have a bad apple or two that could not get approved due to weak lawsuits, but the lender you choose should have far more good reviews than bad. You should also examine the negative reviews to see if the funding company responded with an explanation or offered a resolution.
Speak With Your Lawyer
In reality, your attorney will be the pivot point for the funding company’s ultimate decision regarding a cash advance. The full details of the case and the estimated value are crucial to know. Additionally, if any outstanding liens exist that will affect the final lawsuit settlement amount, the funding company must be informed of these.
Once an applicant has spoken with a funding company representative, the plaintiff must communicate with their attorney in preparation for the next steps with the company. This allows the lawyer time to look over all pertinent details and prepare an estimate of the lawsuit’s financial worth. Some paperwork will need to be sent from the law firm to the funding company. The benefit of having an attorney already on board helps foster a good relationship that can aid in moving funding decisions along quickly.
Contact The Legal Funding Group For More Information
If you are interested in applying for legal funding, The Legal Funding Group is here to help. While we offer funding services, our primary goal is to help plaintiffs and law firms acquire the financial support they need to fight for justice.