Obtaining a Settlement Loan or Settlement Advance

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For some people who are in financial crisis, a pre-settlement personal injury loan or advance may be a good option. While the interest rates are much higher than typical bank loans, the ability to obtain quick financing without the need for employment verification or credit checks, can make this medium attractive. Typically there are no monthly payments required and payment is only due upon the resolution of the underlying lawsuit. In many cases if the person loses their claim there is no obligation to pay back to lender.

To begin the process you will need to complete an online application or application over the phone with the pre-settlement advance company of your choice. Once the application is completed the company will contact your attorney to verify the information you had provided and also obtain additional details about the pending case. This information along with your application will next be reviewed by the company’s underwriting staff. If the company feels your lawsuit has sufficient value an offer will be made to advance or loan money against your case. Usually companies will not offer more than 10% of what they believe is the total value of the claim. If you accept the offer, you will need to sign a funding contract and disbursement instructions (where you want the money to go).

In order to obtain a settlement loan you will need to have a valid claim (i.e. personal injury lawsuit, workers’ compensation claim). Also, you will need to be represented by an attorney and must live in state where the settlement or judgment proceeds will first go to your attorney for disbursement as opposed to you directly. Further, your attorney’s cooperation in this process is essential. He or she must be willing to provide information about your case and if an advance is made, sign a document acknowledging the same. Finally, settlement advance companies will not allow duplicate advances on one case from different companies. This is known as “advance stacking” or “loan stacking.” If you already have a settlement advance from one company and apply for a second advance with another company you may not receive approval, unless some of money from the second advance is used pay off your prior first advance obligation.

A couple of states have now passed legislation imposing regulation on settlement funding companies (Maine and Ohio) and at least two others (Illinois and Kentucky) are currently contemplating legislation. If you live in one of these states you should verify that the settlement loan company you are working with is either licensed by the state or complies with the particular state’s statute.

There are dozens of companies that offer settlement loan. Not all of them are the same. Many offer varying rates and have high up front administrative charges. Many charge interest that compound monthly or structure the advance in high appreciating increments (i.e. every 6 months the finance charge increases an additional 25% to 50% of the original advance). Since many of these companies do not consider a settlement advance as a true loan, they do not comply with the disclosure requirements of the Federal Truth In Lending Act. This can make comparison between companies difficult. The consumer should therefore should ask specific questions about rates, administrative charges and how interest compounds. It may be easier for the consumer to compare between companies by determining what would be due using various time periods (6 months, 1 year, etc…). This should help make comparison between companies easier. The consumer should also compare the upfront administration charges and make sure the company is licensed (if the consumer lives in an applicable state).

Steven Medvin is the Executive Director of SMP Advance Funding, LLC, which provides lawsuit funding to individuals who need a lawsuit loan for pending lawsuits. For more information please visit: http://www.smpadvance.com.

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