Wondering whether to turn to a traditional bank loan or explore pre-settlement funding? While both options can provide access to cash when you need it most, they’re not created equal, especially when your ability to work and earn income is limited.
For many plaintiffs, pre-settlement funding (sometimes referred to as pre-settlement legal funding or pre-settlement lawsuit funding) offers more flexibility and less risk than a typical loan. Learn about the key differences between the two to make the right choice for your situation.
What Is Pre-Settlement Funding?
Pre-settlement funding provides cash to plaintiffs involved in ongoing personal injury lawsuits. Unlike a traditional bank loan, this type of funding is based on the strength of your legal case rather than your income or employment history, for example. It’s designed to help cover essential expenses while you wait for your case to settle.
You typically need to meet the following criteria to qualify for pre-settlement funding:
- Have a pending personal injury lawsuit.
- Be represented by an attorney.
- Your injury was caused by someone else’s negligence.
- Reside in a state where pre-settlement funding is available and legal.
Types of Pre-Settlement Funding
Pre-settlement funding can apply to a wide range of personal injury cases. Whether you were injured in a car accident, involved in a slip and fall incident, or experienced another form of personal injury caused by someone else’s negligence, this kind of funding can help relieve financial pressure while your case is being resolved. Outside of a slip and fall or auto accident, other eligible types of cases may include medical malpractice, workplace injuries, construction negligence, and more.
What is a Traditional Bank Loan?
A traditional bank loan is typically a lump sum of money borrowed from a bank or credit union that must be repaid with interest over a set period of time. These loans are often used for large expenses like buying a car or paying medical bills. However, unlike pre-settlement funding, borrowers need to meet specific financial criteria under traditional loan requirements.
To apply for a traditional loan, you typically need to:
- Have a strong credit score and clean credit history
- Show proof of steady income or employment
- Provide bank statements, tax returns, and other financial documents
- Possibly offer collateral (especially for larger loans)
Terms of Bank Loans vs Pre-settlement Funding
From repayment structure to interest rates and risk, pre-settlement funding and traditional bank loans operate very differently. Understanding these differences can help you decide which option best fits your current situation.
Terms of a Traditional Bank Loan vs. Pre-Settlement Funding
The first thing to understand is that pre-settlement funding is generally not provided as a loan. In a limited number of states, litigation funders may issue a non-recourse loan, but in most states, pre-settlement funding is based on a purchase agreement. Rather than lending a consumer funds based on the strength of their legal claim, the funding company purchases a portion of the potential settlement or award.
Here’s how the most common terms apply differently to traditional bank loans and pre-settlement funding:
- Loan Amount – The total amount of money borrowed. This applies to both traditional bank loans and pre-settlement funding when given as a loan. In most cases, this concept is known as the Amount Funded in a typical pre-settlement funding agreement.
- Interest Rate – A fixed or variable rate charged on the borrowed amount. When given as a loan, pre-settlement funding typically charges a fixed rate. However, when offered via a Purchase Agreement, no interest is charged; rather a repayment schedule based on 6 month increments is established. In both instances, pre-settlement funding, whether done a loan or purchase agreement, offers a non-recourse structure.
- Loan Term – The set period over which repayment is required (such as 5, 15, or 30 years). This is standard for bank loans. While pre-settlement funding loan agreements may include some repayment terms, reputable funding companies will only require repayment if a settlement is reached. When provided via a Purchase Agreement, there is no term to the agreement – it is only paid once a settlement is reached.
- Repayment Schedule – Traditional bank loans involve structured payments (usually monthly). Pre-settlement funding has no set payment schedule, as repayment comes from your settlement, if one occurs.
- Collateral – Bank loans may require assets like a house or car to secure the loan. Pre-settlement funding does not require collateral; your legal case serves as the basis for the funding.
- Fees – Traditional bank loans may include origination fees, late penalties, or prepayment fees. Pre-settlement funding may include fees, but typically doesn’t penalize for early repayment.
- Default Terms – Terms that define what happens if the borrower fails to make payments. Bank loans have strict default clauses. Pre-settlement funding is non-recourse, so there’s no repayment required if you lose your case.
- Loan Purpose – Traditional bank loans may have restrictions on how the money can be used. Pre-settlement funding is typically flexible and can be used for nearly all living expenses. The only restriction is on the use of pre-settlement fund for legal expenses.
- Required Documentation – Banks often require proof of income, credit history, and more. Pre-settlement funding is based on the strength of your case, not your financial background.
Have you been involved in an accident and need help with pre-settlement funding? Oasis is here to help!
Risks of Bank Loans vs Pre-settlement Funding
While both pre-settlement funding and traditional bank loans offer financial support, they come with different forms of risk.
What are the Risks of a Traditional Bank Loan?
Traditional bank loans come with significant risks, especially for plaintiffs in ongoing lawsuits. Missing payments can damage your credit score and lead to late fees or even foreclosure or vehicle repossession if the loan is secured. Interest rates (especially on personal loans) can be high, and repayment typically starts immediately, regardless of your financial or legal situation. For plaintiffs without steady income due to injury or missed work, these obligations can be overwhelming, making traditional bank loans a less-than-ideal solution while awaiting a settlement.
What are the Risks of Pre-Settlement Funding?
Pre-settlement funding is considered low risk for plaintiffs because it’s structured as non-recourse obligation, meaning you only repay the funds if you win or settle your case. There are no monthly payments or out-of-pocket costs during the legal process. Instead, Oasis is reimbursed directly from the final settlement amount, so if your case doesn’t result in compensation, you owe nothing. This structure offers financial relief without the pressure or risk typically associated with traditional lending.
Repayment of a Traditional Bank Loan vs. Pre-Settlement Funding
With pre-settlement funding, the amount borrowed is repaid directly from your settlement once your case is resolved. There are no monthly payments and, because it’s non-recourse, you owe nothing if you don’t win your case.
A bank loan must be repaid on a set schedule, regardless of your legal outcome. If you fall behind, the bank can take action to collect, which may include charging late fees or seizing collateral like your home or vehicle if the loan was secured.
How Does Pre-Settlement Funding Work?
The steps in the pre-settlement funding process are simple and streamlined, designed to get you the financial relief you need as quickly as possible.
Step 1 – Pre-Settlement Funding Application
The first step in securing pre-settlement funding is completing a simple application with basic details about your case and your attorney’s contact information. Before applying, be prepared to discuss your injury and the type of personal injury lawsuit you’ve filed, and confirm that your attorney is available to share key documents.
Step 2 – Injury Case Evaluation
The funding company evaluates your case to determine its strength and potential settlement value. Factors like the type of case—such as a car accident or slip and fall—and the likelihood of a successful outcome play a big role in how much funding you may be offered. The stronger and more straightforward the case, the higher the potential funding amount.
Step 3 – Funding Approval
Applicants with strong, well-documented cases—such as clear liability in a car accident or a slip and fall with verified injuries—are typically approved more quickly and for higher amounts. Funding companies look for cases with a high likelihood of settling in the plaintiff’s favor, so the clearer the evidence and legal standing, the better the chances of approval.
Step 4 – Funding Process
Once approved, pre-settlement funds are usually disbursed quickly, often within 24 to 48 hours. The money can be delivered via direct deposit, check, or other convenient methods, and in most cases, the full approved amount is made available all at once to help cover urgent financial needs.
What Can I Use Pre-Settlement Funds For?
Once you receive pre-settlement funding, the money is yours to use however you need without restrictions. Here are some common expenses pre-settlement funding can help cover:
- Rent or mortgage payments
- Groceries and household essentials
- Utility bills
- Daycare or childcare costs
- Car payments and auto repairs
- Public transportation or rideshare expenses
- Insurance premiums
- Credit card payments
- Personal care items
- Phone bills
- School or tuition-related costs
- Pet care or veterinary bills
Work With Oasis Financial
Pre-settlement funding offers a low-risk way to stay financially stable while your personal injury lawsuit moves forward. Unlike traditional loans, there’s no monthly payments and no repayment unless you win your case. If you’re facing financial stress after an accident, apply today and see how Oasis Financial can help you move forward with confidence.
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The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. No attorney-client or confidential relationship is or will be formed by use of the site. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter. No reader, user, or browser of this site should act or refrain from acting on the basis of information on this site without first seeking legal advice from counsel in the relevant jurisdiction.
Oasis provides pre-settlement funding, also known as consumer litigation funding, to its customers through different products depending on their state of residence or cause of action. Many consumers will be provided pre-settlement funding in the form of a purchase agreement, which assigns a portion of the pending proceeds from their legal claim. Other consumers, such as those in CO, CT and SC will be offered a funding in the form of a pre-settlement loan, sometimes referred to as a lawsuit loan. These transactions have important differences, therefore, consumers should carefully review and be aware of the type of transaction that is offered to them by any funding company.