The lawsuit loan industry is a real industry.
Not to be confused with bail bonds or same-day cash loans, legal funding is reserved for plaintiffs looking to take legal action and need the funds to make it happen.
Just like someone takes out a loan for a car, house, or a personal loan for some other reason – a legal loan prior to a settlement is a valid financial service you can pursue when taking action in a civil suit.
Litigation is lengthy, time-consuming, and often expensive, which is where the need for legal funding emerged. Commonly referred to as “Litigation Lending,” “Legal Funding,” and “Legal Loans” they all stand as a form of a predetermined arrangement.
That said, not all legal funding is created the same. Today, we will review what legal funding is, how it works when you need it, and lastly the best places to find it.
First, what is legal funding?
Legal funding is self-explanatory – it is funding for your legal causes. Now, not to be confused with funding for bail, bonds, or lawyers, legal funding is specifically designed to help those who are plaintiffs filing a civil suit.
Typically, when someone doesn't have enough funds to hire a lawyer or is perhaps unable to work because of the pending court case, they will opt to pursue legal funding. Cases stemming from personal injury, auto accidents, employment lawsuits, labor law, product liability, and any other lawsuits that may not fall into those categories are instances when you may pursue legal loans.
How does legal loans work anyway?
The interesting component to legal lending is that it really isn't lending or a loan, it is more so an agreement similar to an IOU. You don't pay interest in most cases on the loan, instead, you arrange for a predetermined amount of the settlement.
Litigation is lengthy, messy, and often drawn out with the average lawsuit lasting 1-2 years. In many cases, in an effort to afford attorneys fees and even pay bills, you can use legal lending in what is viewed as a “Contingency Arrangement.”
Contingency [I win my lawsuit] Arrangement [I pay back the loan & any other agreed-upon amounts from the settlement].
Legal loans are essentially an agreed-upon amount of money being paid back to the lender once the settlement winnings are awarded.
The resources provided by litigation funding allow someone to pursue their case without being ousted by a lack of resources. In most cases, there are pre-settlement funding options that allow someone who is at the mercy of court proceedings (aka courts taking forever) to can receive funds ahead of settlement. This is typically reserved for personal injury cases which are attached to lengthy legal proceedings.
What do you have to give up/pay?
Each legal funding company had its unique terms and conditions on how they make their money but here is generally how it works.
- You apply for a legal loan prior to your court case/settlement
- You select and amount of money & how long prior to your court date you will need it to last
- A company rewards you after reviewing your case with a cash advance
- An interest rate and any of their fees is attached and collected at settlement
For example, using the above scenario, if someone applied for a $50,000 loan and needed it for 6 months, depending on the interest rate model and fees (let's say 3% per month) they would owe $62,000 at settlement. $50,000 for the advance and $12,000 in settlement. Some view this as expensive and perhaps a credit line or a personal loan is cheaper, however, there is always the chance you can lose your case.
What if you lose your case?
Always read the fine print, but if you happen to not win your case, there is nothing you payback. Keep in mind, the legal loan industry isn't truly a loan where you have to pay it back with interest. Instead, it is a pre-settlement agreement that the lender purchases/have rights to a portion of the settlement proceeds you may receive. The funding is known as non-recourse, which means that the company cannot ask you to pay if you do not win your case.
Depending on the company that lends you your legal funds, each will have specific terms and conditions that you will have to meet prior to them approving your loan/lending.
Obviously, they want to make sure the case will favor you and them since they are investing money ahead of the case.
Where & how to get legal funding:
A simple internet search will populate tons of companies that can ultimately provide you with legal funding if you're in the market. When crafting this article, I simply searched “Legal funding” and “Legal loans” as I was learning more about the industry to see what came up.
One of the first companies that I found was Uplift Legal Funding which appeared to be one of the more reputable companies. The more I read about Uplift, the one thing that stood out was they used simple interest. Uplift’s direct funding predominantly involves simple, non-compounding interest. Most other companies are similar to student loan lenders in that they use compounding interest, meaning your interest can earn interest.
Companies that provide litigation funding such as Uplift Legal and Provident Legal Funding use simple interest. Always check on this before applying and read the terms and conditions when applying.
Each of the above has a straightforward process from what I was able to gather, you simply apply online, the company will review your case, and if it makes sense, they will fund your legal loan.
The Verdict – is litigation lending worth it?
It depends.
Just about anything in life is justifiable in some regards and not justifiable in other instances. As a general rule of thumb, you have to take your circumstances and assess the pros and cons of every financial scenario.
Case in point, paying off debt vs. investing. People will argue back and forth which is better, but truthfully neither is bad, it truly depends on your situation. For some, paying off their debt is going to help them with stress and hardship. Others may prefer to keep some debt so they can invest heavily into the future.
Either way, it can be said that legal funding is very beneficial in some cases (when someone has no financial resources but a real case to pursue) or not so beneficial in other instances (case is clear, cut, and they have resources).
Ultimately, always do your homework and decide if the fees are worth the effort and start with locating a few good legal lending companies and acquiring more info.
Legal Funding FAQ
Quick List of Legal Definitions:
Below, you will find a quick list of legal definitions to help you as you read this article:
Plaintiff: a person who brings a case against another in a court of law.
Defendant: an individual, company, or institution sued or accused in a court of law.
Sue: institute legal proceedings against (a person or institution), typically for redress.
Legal Funding: funding used in legal proceedings when the plaintiff is in need of financing
(Definitions per Google)
Types of legal cases that can require funding:
A civil case as a plaintiff isn't always easy to navigate, nor cheap. In many cases, the simple act of hiring a lawyer can sometimes cost too much, thus ruling out the ability to go about due process.
Common cases where legal funding may be used include personal injury, auto accidents, employment lawsuits, labor law, product liability, and any other lawsuit that may not fall into those categories.
Is there a lending company for a class action lawsuit?
Yes, there are actually tons of lending companies where you can find legal lending if you're in the market. Most charge an interest rate on the loan (how they make money) and some will settle at your settlement or will charge a monthly payment like a traditional loan.
How much does legal lending loan cost?
Similar to most loans, legal lending costs money in the terms of interest rates. Meaning, lenders will make money based on the interest paid for lending you a loan. Most interest rates for these types of loans are higher, around the 20% or higher mark.
What are the pros and cons of legal funding?
Pros:
– provides resources for those who do not have finances to pursue litigation in a legal matter
– allows for time to get litigation and resources straightened out while riding over the plaintiff
Cons:
– lawsuit and legal loans are quite expensive
– businesses think this type of lending encourages plaintiffs to chase large settlements
– interest rates can be very high & compounded daily
Note: This article was written to provide insight into the world of legal funding. Money Life Wax does not condone, nor stand against the concept of legal funding. In some cases it is appropriate and with any advice received on the internet, you have to do what is best for your situation. There are pros and cons to anything, this includes legal lending. It is best to always consult with professional advisors before taking out any type of loan!