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Verdicts & Settlements

How Does Pre-Settlement Funding Work? Top Tips to Know

— August 18, 2021

The Georgia Supreme Court has ruled that pre-settlement “loans” do not qualify as loans under the Payday Lending Act or Industrial Loan Act.

Pre-settlement funding offers a great way to finance your lawsuit because this option is non-recourse. That means if you do not win your lawsuit or receive a settlement, you do not have to repay the loan. If you do win, you must use part of your settlement to repay the loan and any interest charges.

Important Tips About Settlement Funding

You must first file a lawsuit and hire an attorney to qualify for settlement funding loans. The basic requirements for qualifying for settlement funding include:

  • You must first qualify for representation on a contingency basis, which means the lawyer only gets paid if they win the case.
  • You must have sustained real injuries or property damage.
  • The case must be mature.
  • The merits of the case must seem likely to win you damages.

Understanding Your Obligations

In many cases, your settlement can be used for other purposes as well, like covering personal expenses. Many injury victims are not able to work after, and the settlement money can be used for their personal needs. 

However, it is essential to remember that all these expenses must be paid from your settlement. Getting too high a loan could result in a very small award after the case is settled. The top tips for pursuing settlement funding include the following:

Do Not Accept the First Offer

Lawsuit funding companies advertise heavily because they are anxious to loan money to those likely to receive compensation. However, the loans can be expensive, so you should shop around for the best value. Gather information about a couple of offers from different firms and see which one suits you best. If you can get by without a settlement loan, it is better for your future financial health.

Consider How Long the Case Will Take

Some cases could drag on for months or years, and the litigation expenses and personal costs could prove prohibitive. You won’t be required to pay more than your award, but a prolonged case could reduce your award to basically nothing.

Beware of High-Interest Rates

Interest rates on settlement funding loans run as high as 60 percent per year. Try to find a company that offers a more reasonable rate. Reputable lenders are available for pre-settlement loans.

Picture of a tablet explaining interest rate; image via, CC BY-SA 3.0, no changes.
Picture of a tablet explaining interest rate; image via, CC BY-SA 3.0, no changes.

Gather as Much Information as Possible

Make sure that your attorney has as much information as possible to support your case and the amount of compensation you are seeking. It often takes weeks for a lender to make a decision. They tend to gather as much information as possible from your attorney before making a final decision.

Explore Other Lawsuit Financing Options

Alternatives to pre-settlement funding include traditional bank loans, low-interest mortgages guaranteed by your equity in the property, loans from retirement accounts, money from friends and family members, and even credit card funding. Before settling on an option, make sure to explore all alternatives. Each one offers a set of benefits and disadvantages; see which one answers your needs best.

A Statistical Outlook

According to experts, settlement funding companies earn more from motor vehicle plaintiffs than mass torts – 60 percent instead of 55 percent. Mass tort settlement cases usually charge less interest, however, than motor vehicle injury cases. It is recommended that you only receive 15 to 20 percent of the expected settlement amount. Many lending companies limit your loans to this range.

Hiring an Attorney to File a Lawsuit

The Georgia Supreme Court has ruled that pre-settlement “loans” do not qualify as loans under the Payday Lending Act or Industrial Loan Act. Several clients sought relief from their obligation to repay high-interest loans, but they were not successful. 

You can get pre-settlement funding in Georgia with loans from reputable lenders as low as 1 percent to 2 percent. Your first step is to hire an attorney to file a lawsuit. Also, you can talk directly to your attorney about this topic and ask for their professional advice.

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