Is It Appropriate to Recommend a Settlement Loan to Your Clients?
A settlement loan has the potential to immediately relieve your clients’ financial stress, giving them the capital they need to manage expenses as they await the receipt of their settlement. But is it appropriate to recommend a settlement loan to your clients?
What Is a Settlement Loan?
Let’s talk about how settlement loans work.
Despite the name, settlement loans aren’t really loans – or at least, they work a little differently than conventional loans do. Instead, they work more like an advance, which is why they’re sometimes called settlement advances.
In any case, a plaintiff can apply for a settlement loan whenever they have a case where they expect to win a settlement. As long as that case is sufficiently promising, they’ll likely qualify – no minimum credit score required.
At that point, the applicant will be approved for an advance of a specific amount of money. They will receive this money relatively quickly (sometimes the same day) and can then use the money however they want. These loans are considered non-recourse; if your client doesn’t win a settlement, they won’t owe anything back at all.
Is Your Client a Good Fit?
So is your client a good fit for a settlement loan?
These are the variables you'll need to consider:
- Financial situation. Think about your client’s financial situation. Are they currently out of work and facing stacks of medical bills? Are they having trouble meeting their daily expenses? If your client can easily afford to wait until the settlement arrives, they may not need a settlement loan at all. However, if they're currently struggling and it looks like things are only going to get worse before the settlement officially arrives, they may need a settlement loan pretty desperately.
- Settlement prospects. You should also think about whether or not this person is likely to qualify for a settlement loan. Settlement lenders only provide loans to plaintiffs who are highly likely to win a sizable settlement; this is because plaintiffs who do not win a settlement end up owing nothing. Think about the chances of this case winning before you make a recommendation.
- Timeline. How long do you think this case will take to settle? How long will it be before your client wins this settlement? If the settlement will come soon, maybe the client can wait and not have to get a settlement loan. But, if their financial situation isn't good, even if the settlement may arrive soon, relieving your client's stress by putting a little extra cash in their pocket can help immensely.
- Fiscal responsibility. Finally, think about your client’s fiscal responsibility and financial knowledge in general. Even though settlement loans are technically non-recourse, your client could still end up being responsible for covering not only the principal, but interest as well. Depending on the fee structure of the settlement loan company, your client could end up owing more money back than they expect.
Is the Settlement Loan Appropriate?
You'll also need to think about the settlement loan itself. Different settlement lenders have different approaches, meaning every settlement loan available is going to present a unique set of circumstances. You'll want to make sure that you recommend only a qualified and trustworthy settlement lender to maximize your client's chances of success.
- Fixed fees vs. interest rates. One of the biggest things you'll need to consider is the fee structures. Most settlement lenders charge an interest rate for the loan, which can quickly compound and make your client owe more money than they initially borrowed. For the most part, you'll only want to recommend settlement loans that charge a fixed fee. This way, the amount of additional money they owe will be capped and they'll know exactly what they're getting into the moment they apply.
- Fees. Be sure and review the fee schedule. Sometimes it is difficult to figure out exactly what fees are being charged and how much money your client is actually receiving. Make certain the fees are spelled out clearly before your client signs the documents.
- Recourse vs. non-recourse loans. The vast majority of settlement loans these days are non-recourse, granting plaintiffs some degree of financial protection if they end up not winning a settlement. Just make sure this is the case with the company your client chooses.
- Terms and conditions. Are there any other terms and conditions that you need to be familiar with? Are there any contingencies that could restrict your clients or present them with other challenges? Are there hidden fees or other complications that your clients may not notice right away?
- Application and approval process. Also consider the application and approval process. Generally speaking, most settlement lenders try to make the application as quick and painless as possible. They don't need to collect much information or run a credit check, so they only collect basic personal information and the contact information of the plaintiff’s attorney. Approval should happen within a few days.
- Funding availability. Once your plaintiff is approved for a loan, how long will it be until that funding is made available to them? Ideally, they'll be able to get access to the money within a day, easing their financial burden almost immediately.
- Lender trustworthiness. Finally, talk to the settlement lender directly to evaluate their trustworthiness and communication. If you get a bad vibe or if it seems like a scam, move on to a different settlement lender and try to find a more reliable source.
Settlement loans aren’t right for every plaintiff, nor should every lawyer take the time to recommend one. But if you’re interested in the prospect of settlement loans, or if you’re looking for a reliable partner, you’re in the right place. Contact us today to learn more about pre-settlement funding and how we’re different from other lenders!