Injuries and accidents can leave you without cash when you need it the most. According to a 2023 study conducted by Payroll.org, 78% of American adults live paycheck to paycheck, an increase of 6% from 2022.[1] For those individuals, missing even one paycheck could mean falling behind on bills. And missing more than one paycheck could cause significant financial hardship. Advances and loans on lawsuit settlements help people access funds if they’re facing financial difficulties due to an accident or injury.
If you were recently injured due to the negligence of another individual or entity, you could be facing financial hardships for several reasons, such as:
- Not being able to return to work
- Only being able to return to work part-time
- Having a vehicle totaled in your injury accident
- Unexpected medical expenses
Loss of income due to an injury or accident can be stressful, but advances and loans on lawsuit settlements and pre-settlement funding are available to help bridge the gap between the accident and any compensation payout.
Is Pre-Settlement Funding a Loan?
There are crucial differences between pre-settlement funding and traditional loans. Like traditional loans, pre-settlement funding accrues interest. There are terms and conditions associated with the funding, too.
However, unlike loans, pre-settlement funding doesn’t require a credit check. Pre-settlement funding arrangements differ from loans in several ways:
- You do not make monthly or routine payments.
- You must pay the outstanding amount in full when you receive your compensation.
- If you do not receive compensation, you do not have to pay back the funding, interest, or fees.
- Your approval does not depend on how much you earn or your credit history.
- You must have a valid legal claim and an attorney representing you.
The different eligibility criteria and repayment arrangements make pre-settlement funding a lifeline for many individuals.
Pre-Settlement Funds vs. Traditional Loans: Key Differences
There are several key differences between loan types to take into account:
| Pre-Settlement Funds | Traditional Loans | |
| Qualification Process | Based on the likelihood of a successful claim | Based on income and credit history |
| Uses | Any | Depends on type of loan |
| Time to Access Funds | Fast | Variable |
| Loan Amounts | Based on the anticipated settlement value | Based on loan term, income and credit history |
| Repayment Process | Repaid out of final award/settlement | Repaid monthly |
Let’s consider each of those in turn:
Qualification Process
Traditional lenders have strict qualification criteria based on the borrower’s income and credit history.
Pre-settlement funding uses different criteria. To qualify for pre-settlement funding, a person must have a lawyer representing them and a good chance of winning the claim. The applicant’s income and credit history are not considered because repayment will come from the settlement rather than the plaintiff’s income.
Loan Uses
Traditional lenders may ask a person what they intend to use the loan for. Pre-settlement funding is more flexible. Many people use their pre-settlement funding to replace damaged items, pay medical bills, and cover living costs. There are no restrictions on how the recipient can use the money.
Time to Access Funds
Pre-settlement funding approval is typically a quick process, with many applicants getting money the next working day. The length of time approval takes depends on how complete and detailed the application is.
The time to process traditional loan applications can vary depending on the bank or lender and whether the applicant has an existing relationship with them. ID checks and credit checks could slow down the process.
Interest and Fees
Both traditional loans and pre-settlement funding have interest on them. Interest rates on pre-settlement funding for plaintiffs can be as low as 3.4% per month. It’s hard to compare these rates to traditional loans because lenders vary their rates depending on the duration and size of the loan.
Some borrowers, especially those with very good credit ratings, may be able to get low-interest loans from their banks. Others may find themselves limited to short-term loans with high interest rates. Short-term lenders often charge arrangement fees and late payment fees, which can make borrowing even more expensive.
Loan Amounts
Wondering how much funding you can get? The amount of money a person can borrow via pre-settlement funding depends on the expected value of their claim. In contrast, the amount of money a traditional lender might offer depends on the borrower’s income and the term of the loan.
If an accident victim needs to borrow a large sum of money against an expected settlement, they’re more likely to get approval for pre-settlement funding than a traditional loan.
Repayment
Repayment for traditional loans usually starts almost immediately, with repayments made monthly. Pre-settlement funding takes a vastly different approach. The plaintiff repays the loan as a lump sum, out of their compensation award or settlement. If the plaintiff loses their case, they don’t have to repay the advance.
Benefits of Pre-Settlement Funding over a Traditional Loan
There are several benefits to obtaining pre-settlement funding over traditional loans. With traditional loans, you must make monthly payments. If you default on these payments, your loan will end up in collections and negatively impact your credit score. Most traditional lenders will also check your credit score and history to determine your eligibility for a loan.
Pre-settlement funding is not determined by these factors but rather the details of your lawsuit. This means you could be more likely to qualify for pre-settlement funding than other loans. Additionally, applying for your funding will not impact your credit score.
Loans can take a long time to approve and fund. With our pre-settlement funding, the application process is quick and easy. After approval, you’ll receive your funds within 24 business-day hours.
With a traditional loan, you must pay the money back, no matter the outcome of your case. If you end up not settling your claim or receiving a court award, you are still on the hook to pay the money back anyway. If you’re already struggling to make ends meet, paying a loan can be quite tricky.
Lawyers rarely work directly with traditional lenders. However, if you receive pre-settlement funding, your lawyer will take care of repaying us once they receive compensation on your behalf. They will contact us and handle the repayment process, leaving you free to focus on recovering from your injury. At USClaims, we have worked with many law firms, helping plaintiffs see their cases through to get the compensation they’re entitled to.
Get Pre-Settlement Funding with US Claims
The good news is that there are several options for dealing with your unexpected financial hardship, including loans and pre-settlement funding. Lawsuit settlements are similar to loans but offer greater flexibility and simpler re-payment options. At USClaims, we offer pre-settlement funding for personal injury victims. This type of funding can help you bridge the gap between your injury and when you receive your settlement or court award.
If and when you receive your compensation, whether through a negotiated settlement or a court award, we will claim payment back for your funding, plus any fees and interest.
The availability of pre-settlement funding varies by state. Contact USClaims for more information.
Sources
- “Getting Paid in America Survey.” National Payroll Week, www.nationalpayrollweek.com/npw-survey/. Accessed 22 Apr. 2024.
