Is Pre-Settlement Funding the Same as a Cash Advance?

Lawsuits can be a massive financial burden. Pair that expense with the circumstances that lead to many lawsuits, and you can see why plaintiffs often need funding long before a settlement or judgment is reached. Often, plaintiffs that need funding are involved in a personal injury suit or wrongful termination suit, both of which usually means they have lost their income.

There are a few options for people to scrounge up extra cash so they can wage a proper legal battle and not default on other loans or payments they need to make. Plaintiffs in this situation can choose from cash advances, pre-settlement funding, borrowing from friends and family, or even traditional bank loans. There are benefits and drawbacks for each type of borrowing, and understanding your options is crucial for avoiding financial difficulties later.

Cash Advance

People familiar with using credit will understand the concept of a cash advance; it is borrowing money instead of making purchases using credit. When you take a cash advance on a credit card, for example, you will have to pay it back the same as using credit to buy a meal or shop online. One of the only differences is that cash advances on a credit card can sometimes carry a higher interest rate than standard purchases.

Cash advances can also be drawn from the value on other existing loans like a line of credit, mortgage, or a mostly paid-off vehicle title loan. Usually, this is done through negotiation with the lending institution and is limited by the value of the collateral and your credit score.

While cash advances can be used to quickly cover surprise expenses, they are limited by your assets and need to be paid back like the type of loan they were drawn from. For plaintiffs with few large assets to drawn upon or poor credit histories, this option can be expensive or impossible. Sometimes a lawsuit can take years to reach a judgment or settlement, which means you’ll have to be paying back these cash advances that whole time without respite.

Pre-Settlement Funding

Also known as a lawsuit loan, pre-settlement funding is essentially a cash advance against a potential settlement or favorable court judgment. Anyone who has watched daytime TV has seen endless commercials promising quick and easy cash, which is usually from a pre-settlement funding company. This type of lending is relatively new in the landscape of personal loans, which is why there is a lot of flashy advertisement and competition.

Pre-settlement funding works similarly to a cash advance but with some distinct benefits for a plaintiff that has tight finances. The cost per dollar to borrow the money usually works out higher than traditional loans due to higher interest rates and a “funding fee” that gets added to the principle. This is more than made up for by having a delayed payback structure that does not start until the lawsuit is finished. This eliminates the instant burden of more credit use.

The main reason that lawsuit loans cost consumers more is the higher risk for the institution. And this is a crucial point. In most cases, if you do not win your settlement, you are not responsible for paying back the loan. This is a critical difference that can protect plaintiffs from crippling debt following a crushing defeat in court.

People usually seek personal injury lawsuits funding for personal injury lawsuits when their income is lost to an injury or new disability. It is always wise to explore this option since it can ease your financial burden.

Next Steps

Anyone considering pre-settlement funding should bring their lawyer along to sign the paperwork. Never work with the company’s attorney since it is in their best interests to reach a deal that benefits their client, not you. Review your finances and see if you can weather the extended burden of an expensive and drawn-out court case. Pre-settlement funding may be your best chance at staying afloat and being able to focus on a victory in the courtroom.

About the Author:

With a law degree under his belt and years of experience, Mark Scott set off to make the law more accessible to all. He decided to help people lost in the maze of legal terminology to find their way. Mark writes clear and concise pieces and gives simple advice that is easy to follow. On account of positive feedback from readers, he decided to dedicate more of his time to this goal and became a legal columnist. In his writings, Mark covers a wide array of topics, like how to seek legal counsel, or how to deal with different procedures. Furthermore, he directs his readers toward other trustworthy resources for more in-depth information.