When researching settlement funding companies, it’s important to do your homework on interest rates. Because pre-settlement funding is an investment, not a loan, rates are not regulated within the industry. The danger here is that there are no interest rate caps. While one company may charge a higher flat interest rate, another company might charge a lower initial rate with increasing rates over the course of the lawsuit.

Obviously, it’s important to ask the right questions to ensure you understand what you will be charged so that you don’t give up a significant portion of your settlement to fees and interest. If a company you’re considering does not advertise their interest rates, consider this a red flag. Unfortunately, not all advance lawsuit lenders are ethical. Some companies train their call screeners to not disclose their rates unless specifically asked.

Here are two of the most common interest arrangements when it comes to working with an advance lawsuit funding firm:


Flat fee

Some companies will offer an advance subject to flat fees to plaintiffs, which is arranged at the outset of the relationship and generally does not change. An example of a flat fee arrangement might be a company that advances 10 percent of a projected settlement. Then, their fee for advancing the money will be 30 percent of the overall remaining settlement (after fees and applicable liens are satisfied).

The benefit of a flat fee arrangement is that the fee will remain the same regardless of the time it takes for the lawsuit to settle. These flat fees may be subject to variation, however, which means there might be different rates for different periods of time.

Monthly compounding

If an advance lawsuit funding firm uses a compounding interest rate, this means interest is calculated on the amount of the advance plus interest. For lawsuits that are expected to settle quickly, this can work in your favor over a flat fee arrangement that collects a large percentage of your final settlement. In our experience, most settlement funding companies charge monthly compounded interest (and many also charge fees—something to watch out for).

What you need to remember about settlement funding

However a settlement funding firm calculates the fees it charges, there are two things to remember. First is the fact that lawsuit lending is not actually a loan, but a cash advance backed by your lawsuit settlement as an asset. This is much bigger risk for a firm to take on than lending against a home or car—hence the high interest rates. The second thing to keep in mind is that lawsuits can take longer than expected. When selecting a settlement funding company, ask if they offer secondary advances. Hearings can be delayed or new evidence can be presented that needs to be reviewed thoroughly. In other words, if you choose to take a conservative advance to help you pay bills and make ends meet and then the legal process takes longer than anticipated, you might be in the position of needing more financial help. The last thing you want to do is settle early for an amount much less than planned or drop the case entirely out of desperation.

The stress of a lawsuit, especially if you have been injured and are out of work, can weigh on you. It’s understandable to feel overwhelmed by all the terminology in our industry, but Resolution Funding is here to make things easier. We encourage you to shop around and ask lots of questions about the total of all fees and interest you will pay as part of your lawsuit advance. And if we can answer any questions you might have or help you compare interest/fees sheets and payoff schedules, call us at 855-529-2382.