Is pre-settlement lawsuit funding a loan?
Despite the word “loan,” pre-settlement funding is non-recourse financing and does not work like traditional loans. Non-recourse third-party plaintiff financing means that the legal funding company will buy a portion of your expected settlement proceeds, and the advance is not based on collateral, recourse, or assets. This is why it is called non-recourse funding, because the funds are paid back only if you win your litigation, and we can’t come after you if you don’t.
On the other hand, when you take out a loan from a bank, you are obligated to pay back the money, or else they can take your house, freeze your bank accounts, repossess your car, sue you, trash your credit score, and even drive you to bankruptcy if you don’t pay off the full debt. This is why financial institutions charge lower rates than settlement financiers; the loan risk is not high.