In the last article, we examined historical pricing patterns in the lawsuit cash advance financing industry. We also discuss the business dynamics that often change prices in any business that puts capital at risk for profit. Specifically, we mentioned how the settlement loan industry evolved from a company that charges up to 10% per month as “interest” on lawsuit cash advances to a business where applicants routinely receive “financing” for as little as 15% for a period of six months.

In this post, we examine the costs associated with lawsuit funding and look at them from the perspective of an applicant who needs cash for whatever reason. From this angle, we can more accurately assess the costs associated with this type of financial relief, only available to those who have a pending lawsuit.

Because everyone’s circumstances are different, weighing the costs to obtain a lawsuit loan or pre-settlement financing against the future income from an individual’s pending case can only be accomplished on a case-by-case basis. For this reason, perhaps the best way to illustrate the point is to use a hypothetical example.

Lawsuit Financing Costs – Hypothetical Example

A 36-year-old plaintiff in a lawsuit finds himself unable to work and support himself and his family due to injuries sustained due to someone else’s negligent driving. Since 2008, Complainant has exhausted all other avenues of financial assistance. He has borrowed money from his friends and relatives. He has taken out a home equity loan against the value of his house. He has gone through his disability payments from work and the other “benefits” he receives do not cover his monthly expenses. He is currently 5 months behind on his mortgage and property tax payments.

Forced into imminent foreclosure proceedings, this plaintiff’s options are limited. For one thing, you can file for bankruptcy, which might save your home but ruin your credit rating for years to come. You may hire an attorney for this purpose. The attorney requires payment up front for his or her time and expertise.

Another option is to obtain demand funds to help you with your liquidity problems. Let’s dig a little deeper into the analysis.

Cost Comparison

We already discussed the costs associated with lawsuit cash advances. But what about the cost of not being able to pay bills on time, or not paying them at all? We may not be able to quantify the costs exactly, but we can at least identify some potential problems. For example, a mortgage default could result in the following “costs” for the homeowner.

1. Withdrawal from Housing. The defaulting party must then find refuge. Typically, a rental unit requires the first and last month’s rent plus a security deposit. It is three months rent in advance from the new tenant. Of course, if the person has three months’ rent, they could probably at least delay the foreclosure process. So there is a liquidity problem in addition to the existing problem. One can easily foresee multiple “costs” associated with removal from a place of residence (eg moving costs, additional fuel expenses, storage fees, etc.).

2. Destroyed credit scores. Whether we like it or not, this country operates on debt. Who owes whom is the oldest and possibly the most profitable game in history. Access to credit is an integral part of the game and is based on credit scores. Obviously, a foreclosure would severely hinder a person’s access to credit for car loans, future home purchases, appliances, or even credit cards. Furthermore, even if credit is offered, the interest rates charged will be much higher than would otherwise be required. The above are simply two “costs” faced by the person in our example.

conclusion

In thinking about the above, it is helpful to weigh the long-term effects of these events. The real issue is how to accurately assess the cost and compare it to getting a lawsuit cash advance against a case. Ultimately, the analysis depends on individual circumstances. Fortunately, the lawsuit financing business exists for those who do the research and choose lawsuit loans as a possible solution. Thousands of people make this decision every day. Thank you for your interest in the pre-settlement loan business.