In order to make clear the difference between a regular loan (made by borrowing money from an individual or entity) as opposed to a settlement loan, it often helps to explain in-depth the details of a settlement loan. The term lawsuit funding is synonymous with the term settlement loan. Technically, it can be said that a settlement loan involves advancing an amount of money to a legal client because of the anticipation that a favorable settlement is going to be reached in civil court. This post will be contrasting lawsuit funding with other loans.
Loan – According to the Merriam-Webster dictionary, the word is defined as “money lent at interest.” This doesn’t explain the difference between a traditional loan and litigation financing, however, so this contrast will be discussed later.
Credit – The dictionary defines credit as a transaction between two parties in which one party (the creditor) supplies goods, services, money or securities in exchange for a promise of future payment from the debtor. The term lender is synonymous with the word creditor, and the word borrower is synonymous with the term debtor. The payment of some amount of interest is usually included in such transactions.
Based on the above definition, one can see that a credit transaction meets the following criteria:
- A creditor supplies goods, money, etc.
- A debtor promises repayment in the future, frequently at interest.
Using this definition as a basis, one can easily see that cash advance funding in a lawsuit is not a loan in the traditional sense. Below is a description of some traditional loans.
Loans generally fall into one of two categories, secured or unsecured. The basic difference between the two is the method or remedy that the lender can use if the borrower fails to make payment according to the terms of the loan.
Secured – this type of loan is one in which a tangible piece of property or an item belonging to the borrower is tied to the loan and will be forfeited by the debtor should he fail to pay exactly as stipulated in the loan papers. The pledging of this property (called collateral) is documented in paperwork called a security instrument. The lender then files a public notice of its new right to the property or item should the borrower default on the loan.
The procedure involved in purchasing an automobile is a good example of a secured loan. The person buying the vehicle signs a note that gives the exact terms of the loan. For example, the note outlines the length of time allowed for repayment in full, the interest rate to be paid, how often payments must be made and the exact amount of each payment. The creditor then files a copy of this paperwork, usually in the county courthouse in which the property is located, thus entering the security instrument into public record. This officially gives the lender the legal right to take said property if the loan does not get paid.
Unsecured – credit cards are a good example of unsecured debts. In these cases, there is no collateral, so the creditor has no right or ability to take a piece of property to help defray the loss when a credit card user fails to pay his credit card bill. In such instances, the creditor can sue the cardholder for the amount owed plus penalties and other costs outlined in the credit note.
What Are Settlement Loans?
Secured and unsecured loans are part of the mainstream of day-to-day living. However, the topic of legal funding (settlement loans) is not so common and, therefore, not so well known. Clients in the middle of lengthy, drawn-out legal cases may find themselves in desperate need of some help to ease their financial burdens while their cases are being pursued. In the past, these plaintiffs might have been forced to ask for financial advances from their attorneys. Lawsuit funding with settlement loans offers a way for the financial burdens of clients to be eased.
Usury laws help control the maximum amount of interest that is allowed to be charged on traditional loans. While legal funding contracts aren’t regulated by usury laws in most states, companies handling pre-settlement lawsuit funding are able to set a fair rate for cash advances in pending legal cases. Frequently, such pre-settlement monies carry less interest than a credit card does.
Contact The Legal Funding Group for Financial Help
The Legal Funding Group provides plaintiffs and attorneys with pre-settlement and post-settlement funding for their lawsuits. Legal financing is used by law firms to expand their working capital, and is used by plaintiffs who are low on funds after experiencing an injury or trauma that is physical, mental, or emotional in nature. Bills and living expenses will continue to quickly accumulate and some plaintiffs may not be able to work because of an injury they have sustained.
Call 912-777-3997 or fill out a quick and easy online application. No credit score or financial history is required for approval.