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How much should you pay when you get legal funding?

Lawsuit funding, also known as ‘lawsuit loans’ (even though it is not considered a loan at all) is an increasingly popular form of micro finance that allows victims of personal injury accidents to access a small part of their future settlement.

Typical legal funding for consumers starts at rates around 50-75% per year on average, with some companies charging much more, and some, less. Funders justify high rates by citing default rates, and since this is not a loan - there is no promise to pay back by the consumer. In fact, when the balance is paid out, it is the attorney handling the case that is responsible to pay back the funds to the funder. The goal of this article is to examine the other costs of legal funding, and how you can make a better decision if you decide a lawsuit loan is right for you.

For example - say you have a hard time paying bills and need a $2,000 car accident loan against your case. Different funding companies will have different rates - but that’s not the whole story. A typical funding contract has many more charges and pitfalls that could cost you if you are not aware of them. Here is a short list what you should pay attention to when getting lawsuit funding:

  • Simple or compounded? Always ask your funder if the rate is simple interest rate or compounding. Simple is cheaper, compound interest rates are more expensive.
  • Fees everywhere - always ask for the fees that the funders charge you. $75 may seem low for a document fee, but on a $1,000 advance - that’s 7.5% of interest! Never pay any fees on any funding contract.
  • Is your funder actually a funder? Most funders are actually brokers - they take your information, and sell it to another funder for a commission (usually 15% - charged to you of course). Always ask if you are dealing with a direct funder or broker.
  • Does your lien have a cap? The vast majority of funders do not have maximum caps on what you have to pay them back. $1,000 can become $5,000 in less than 3 years (with fees, compounding rates, and high rates). Never take funding from a company that does not offer lien caps.
  • Never pay an application fee to get funding. Never sign a contract without reading it, always focus on the repayment and not just the interest rate, and always consult your attorney before signing the agreement.

Legal funding is expensive. But with an educated choice, you can get better legal funding instead of getting screwed. HM Capital is offering low-cost, flat rate, no fees legal funding with caps on all liens.


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