How to Repay Your Settlement Loan after You Win the Case

A settlement loan allows you to use the future earnings you expect from a lawsuit settlement to pay the legal expenses associated with the case. For example, a spouse suing an ex-spouse for missed alimony payments could use the income expected from those payments as collateral on a loan to pay his lawyer. These loans are high risk by nature because they use a hypothetical income, the settlement, in order to secure the debt. Once you do recover the funds, you will face high interest rates and short time periods to repay these high risk loans.

Know your Contract

The most important thing to keep in mind before you repay your settlement loan is the actual terms of your contract. Do you know how long you have to repay the debt? Will your interest rate climb if you wait too long? Is the repayment due in a lump sum or in installments? Know the answers to these questions before you take the settlement from the case. This will help you plan how to use the settlement to repay the debt.

Have Debts Forgiven or Excused

Most lawsuit loans are excused if the plaintiff in the case does not recover. This is one of the key reasons the contracts are considered exceptionally high risk for lenders. In fact, lenders will only extend the debts if they believe there is low to no chance the plaintiff will lose. Even if you do win your case, though, you may not recover as much as you were hoping. The lenders know this too, so they keep the loan to value ratio low. In the rare occurrence where the loan you took was larger than the settlement you received, determine if you are eligible to have the difference in the two excused. If you are, ensure you capitalize on this option.

Pay High Interest Debts First

Your lawsuit loan may not be the highest priority debt you have. If you have a mortgage, this will take priority over a personal lawsuit loan in the order of your liens. However, mortgage lenders are more willing to move slowly in recovering missed payments; high risk lenders are not. Your lawsuit loan cost will climb if you miss a payment, and the lender will not be highly open to helping you in an emergency. Pay the highest interest and highest risk debts you have first with your settlement, then move on to lower interest, lower risk debts.

Set Up a Payment Plan

If your settlement is just not high enough to pay off your lawsuit loan and cover your other obligations, you can speak with the lawsuit lender about setting up a payment plan. This is particularly doable if you end up with a structured settlement instead of a lump sum settlement. As your lender to accept a monthly payment, and make sure you meet those payments each month. Missing a payment on a high risk loan is costly both to your finances and to your credit score. 

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