Why Pre-Settlement Advances (AKA Lawsuit Loans) can be Expensive
Why Pre-settlement Advances (AKA Lawsuit Loans) can be Expensive
A pre-settlement advance is a non-recourse type of advance, which means that if you don’t win your case, you don’t owe back the funding company. When a funding company looks at your case they cannot determine with certainty that your case will be successful.
A certain percentage of cases in which they think will win, actually lose. In addition to an outright loss other circumstances can cause the advance to go awry. An attorney may fire their client or the client may fire the attorney. Other unforeseen events could affect the success of the case. The client may have a prior medical condition, liability may be in question or there may not be adequate insurance available.
Because of the risk and uncertainty of the outcome of every case, investors require a higher rate of return on a lawsuit advance than other types of investments.
The case may not be worth as much as the funding company first thought. There may not be enough money left over after paying off the other liens against the case to pay the funding company what they’re owed.
Brokers are the middle man between clients who need funding and underwriters who provide the funding after reviewing the case. Brokers provide a valuable service in that they can speed up the process by showing the case to multiple underwriters. Brokers spend a lot on marketing to get leads on cases. Brokers make up most of the advertisements on the web or television for lawsuit loans.
Usually a brokerage fee is passed on to the client. However, using a direct funder instead of a broker could slow the process down. If one direct funder denies your case, then you have to call another one until you’re approved.
Every funding company has to limit their downside by underwriting the lawsuits they fund. Underwriting takes time and manpower.
Usually the underwriting process involves speaking with the client and attorney about the facts of the case. The documents and facts of the case need to be reviewed by an attorney to gauge the chance of the case winning or running into problems.
A lot of lawsuit loan companies charge compound interest. When a company charges compound interest, interest accumulates on the principal as well as the accrued interest. On the other hand, simple interest accumulates only on the principal advanced from the start. All things being equal, simple interest is cheaper than compound interest.
Bridgeway Legal Funding
Bridgeway Legal Funding is a leading pre-settlement advance company. We offer clients a low fee, using simple, not compounding rates. To learn more about a pre-settlement advance from Bridgeway, call 800-531-4066.