When individuals face unexpected financial hardships, they often turn to financial assistance to cover immediate expenses. Two common forms of financial support are legal funding and traditional loans.
Although both options provide cash in times of need, they differ significantly in their structure, repayment terms, and the situations in which they are appropriate. Understanding the distinctions between legal funding and traditional loans can help individuals make informed decisions when seeking financial assistance.
Purpose & Use
One of the main differences between legal funding and traditional loans is the purpose for which they are typically used. Traditional loans are general-purpose financial products that can be used for a wide variety of needs, such as home purchases, car loans, or personal expenses. These loans are typically provided by banks or credit institutions and are intended to help individuals with any financial need, provided they meet certain creditworthiness criteria.
On the other hand, legal funding is specifically designed to assist individuals involved in ongoing lawsuits. Also known as lawsuit funding or pre-settlement funding, it provides cash advances to plaintiffs who are awaiting a settlement or judgment in their legal case. This type of funding is particularly useful for those who cannot afford to wait for their case to settle, especially if they face mounting medical bills, living expenses, or legal fees. Unlike a traditional loan, legal funding is tied directly to the outcome of the lawsuit, meaning that it is intended to help with specific costs during the legal process.
Repayment Structure
The repayment structure is another key area of difference between legal funding and traditional loans. Traditional loans typically require fixed monthly payments, with a set interest rate that accumulates over the loan term. Borrowers are obligated to pay back the loan, regardless of their personal situation or the outcome of the situation that necessitated the loan. In many cases, failing to make these payments can lead to penalties or even default, damaging the borrower’s credit score.
In contrast, legal funding operates under a different repayment structure. With legal funding, repayment is contingent upon the outcome of the legal case. If the plaintiff wins the lawsuit or reaches a settlement, they repay the funding provider, usually as a percentage of the settlement or judgment. If the plaintiff loses the case, they do not have to repay the funding at all. This unique structure makes legal funding a risk-free option for plaintiffs because they are not required to pay back the funds if their case is unsuccessful.
Approval Process
Traditional loans require applicants to meet certain financial criteria before approval. Lenders typically assess credit scores, income levels, and financial history to determine the borrower’s ability to repay the loan. For many individuals, this can be a major barrier to obtaining a loan, particularly if they have poor credit or irregular income.
Legal funding, however, is not based on the plaintiff’s credit score or financial history. Instead, the funding company evaluates the strength of the legal case and the likelihood of a successful outcome. The primary concern for legal funders is the potential recovery from the lawsuit, not the financial status of the plaintiff. As a result, individuals with limited financial resources but strong legal cases may be able to access legal funding even if they would not qualify for a traditional loan.
Interest Rates & Fees
Traditional loans are often subject to interest rates, which can vary depending on the borrower’s creditworthiness and the type of loan. These rates can add up significantly over time, making loans more expensive for the borrower.
Legal funding does not operate with traditional interest rates. Instead, funding providers charge a fee based on the risk involved and the length of time until the case is settled. This fee can vary depending on the provider and the specifics of the case, but it is generally considered higher than traditional loan interest rates. However, since repayment is contingent upon the case’s outcome, the costs are only incurred if the plaintiff receives compensation from the lawsuit.
Risk & Eligibility
Traditional loans typically come with a level of risk for the borrower, as they are expected to repay regardless of their financial situation. Failing to repay can result in serious consequences, such as damaged credit or repossession of assets.
Legal funding, however, is considered a non-recourse loan, meaning that the plaintiff is not personally liable for repayment if they lose their case. This reduces the financial risk for plaintiffs, allowing them to pursue their legal claims without the fear of additional financial strain. Eligibility for legal funding is primarily based on the strength of the case, rather than the financial history of the individual.
Legal Funding From Cash Now Funding Group
Are you or a family member in need of financial assistance due to a lengthy legal battle? Are you preparing for a long-term legal battle to get the compensation you deserve? Cash Now Funding Group can be the financial lifeline you need while your case settles. Applying is free and confidential & no credit check is required.
