What is a Settlement Loan?
A settlement loan is a cash advance that is repayable when the settlement money is distributed. In actuality it is not really a “loan”. Loans must be paid back without condition and the repayment is not contingent upon some future event. A settlement or pre settlement loan is actually a cash advance that is repayable only if there is a successful settlement.
The company making the cash advance actually gets and equity position in the settlement and is only entitled to proceeds generated from the settlement to get repaid. The person receiving the cash advance has no personal obligation to repay the cash advance if no settlement is reached.
Settlement Loans vs. Traditional Loans or Credit Card Debt
- Settlement Loans do not have a term and no payments are due until the settlement is distributed
- Traditional Loans have monthly payments and a set date for full repayment
- Traditional Loans are issued based on credit checks and income verifications
- Settlement Loans are issued based on the merits of the legal claim or potential settlement
- Traditional Loans are absolutely repayable with no exceptions
- Settlement Loans are only repayable if a settlement is reached and if the legal claim is lost then you are not required to repay and principle or interest.
Fees for Settlement Loans
The Fees that are charged are very similar to most credit card charges however there are some advantages to the fee structures on settlement loans.
- There are not “late fees” associated with settlement loans since payments cannot be made late.
- No fees are payable until the case settles so all fees are payed at once.
- Fees range from 2.99% monthly and up, so check them before you apply
- Fees can be reduced if the settlement is distributed earlier than expected
- Fees are not based on a credit score but rather they are based on the risk of repayment from the settlement and how long it is anticipated to take
Work Comp Settlement Loans
If you have been injured on the job then a worker compensation settlement loan may be an excellent option to supplement you work comp benefits. Work Comp settlement loans are not available in every state so check with funders regarding your state. In many cases the workers compensation insurance carrier will deny a work comp claim and provide no benefits. This can be very difficult on an injured work who no longer has income. A worker compensation loan can be a great option for those that are waiting for their work comp claim to be accepted and the benefits to begin being paid. Injured workers should not have to resort to work comp settlement loans but in many cases this may be the most economical and best option for a workers health. By obtaining the work comp settlement loan, a person can continue with their medical treatment and let their body heal before returning to work.
Pros & Cons of Settlement Loans
Settlement loans have many advantages for people who may be pursuing a personal injury claim because they may not be working and may not have enough income to make the monthly payments of a traditional loan. Settlement loans are usually obtainable within 48 hours so you can apply and get funding very quickly.
In addition, these folks may not have good credit and may not qualify for traditional loans. There are no payments, so funds aren’t due until the clients settlement funds are available for the person to repay the advance amount. Pre Settlement Loans are available to people who have a pending legal case even if there is no guarantee they will win their case or receive a settlement.
Settlement loans may cost more than a traditional home equity loan or bank loan because they carry more risk for the financial institutions issuing them. If you take a cash advance that is too large or your case settles for less than you expect then repaying the cash advance could take up the majority of your settlement. Some cases that carry extra risk will not qualify for a cash advance and the option may not be available, however most personal injury cases do qualify.
In short, as settlement loan can be an excellent source of funding exactly when you need it. If you have been injured at work, in an auto accident or any other way and have a legal claim then a settlement loan may be right of you. If you are out of work or have a low credit score then you most likely will not qualify for a traditional bank loan and a settlement loan may be the best alternative.