Settlement Loan Facts

What’s a settlement loan (you may be wondering)? It’s also known as a pre-settlement loan, which is a bit more revealing about what it actually is - a loan provided on the high probability of a successful outcome in a pending lawsuit. Did you know there was such a thing? Well, don’t feel bad if you didn’t. Unless you’ve been involved in a fairly major lawsuit or you’re an attorney, you would not likely have heard of this type of loan. Here’s the lowdown on the pertient facts about settlement loans…

Unlike Other Loans

A settlement loan is unlike other traditional lending instruments, in that the lender bears the risk without any recourse should they make a bad decision. In other words, the loan provider in pre-settlements is essentially gambling that your lawsuit will come out in your favor and you will receive a cash settlement. In that case, of course, the loan they’ve given you will be promptly repaid. Be aware that, given this high risk to the provider, acquiring a settlement loan is difficult without what amounts to an iron-clad case in hand. On the other hand, the merits of your lawsuit are all the lender cares about, so you’re spared the anxiety of credit checks, employment and income verification, etc., as with traditional loans.

What About The Lawsuit?

A common concern with settlement loans - because they take place prior to the outcome of the lawsuit - is that disclosure of the loan arrangment will affect the case itself. To prevent this, laws are in place preventing the defendant or their insurance company from being notified of the settlement loan to the plaintiff (you). For similar reasons, the lawyers involved are also barred from issuing pre-settlement loans or having any relationship with the lender. These security measures seem to prevent the souring of cases in which the plaintiff receives this type of loan ahead of the resolution of the case in court.

Loan Amounts

So, how much can you expect to receive if you are approved for a settlement loan? It varies, but typically it ranges from 10% to as much as 30% of the anticipated settlement figure. As you can guess, it’s not an exact science, but amounts can be from a low of a few hundred dollars to as much as several thousand. It pays to shop around, especially if you have a slam-dunk case where a hefty payment is impending. Depending on how much you want, settlement loans can be obtained in such instances for a higher percentage of the estimated defendant payout.

Spending Limits

Another difference between a settlement loan and a traditional loan is that you can spend the loaned money on anything you wish. Car loans, home loans, and student loans must be spent on those specific uses, but a pre-settlement loan is yours to dispose of in any way you see fit. Just be sure to do your homework before you go on a spending spree. Your attorney may be entitled to a cut of any settlement loan you receive, depending on how you negotiated his/her fees.