What Are the Upfront Costs Related to Settlement Loans?

Settlement loans provide you a cash advance on a lawsuit or lottery settlement. Instead of waiting for the structured payments to be delivered, you can get critical funds today. Some settlement loans are issued prior to even winning the lawsuit, and the funds are used to pay for the lawsuit. In other cases, the loans are issued against a settlement that has already been promised. In any case, you will have to spend a little money in order to get the loan. All loans have some upfront cost.

Down Payment Possible

Down payments are not required on all cash advances. In fact, it is rare that you would be asked to make a down payment on a settlement loan since you are technically placing collateral on hold with the lender in the form of your future settlement. However, you may still be asked to place a security deposit on the debt. The security deposit, in some cases, would be forfeited if you lost the lawsuit and did not recover the settlement. This is a common model for a lender to follow if the debt will be excused in such an instance. 

Paperwork Costs

Applying for a loan and moving through the approval process is not free. You will have to pay to apply in most cases. The application fee may cover the cost of a credit check and employment verification, or you may need to pay for these items separately. Costs for paperwork will be disclosed at the beginning of the loan process. Lenders are required by law to disclose these costs and fees. If you are asked to supply a "membership" fee to join a credit union or similar service, you should be very skeptical about proceeding. 

Closing Costs

Closing costs on a settlement loan should be minimal. The lender may not even be filing a lien with the county, in which case a number of the traditional loan closing costs will be eliminated. If you do receive a closing cost estimate, make sure it is itemized. Ask about any items that seem superfluous. In most loan contracts, some amount of closing costs are negotiable. You will never get out of paying the costs if you do not ask, though. For this reason, it is critical to take a watchful eye to a loan contract before signing. Consider comparing the closing costs your lender is listing with a list found online of acceptable costs to expect. As a rule, closing costs on this type of loan should not exceed one to three percent of the total limits. 

No-Money-Down Loans

You may find a number of offers for settlement loans with no money down. As a rule, these loans are highly risky. Settlement loans are already considered high risk, meaning they will have high financing cost. A lender willing to make the loans with no money down will likely charge you on the back end for paperwork and closing costs. Instead of allowing you to go out of pocket for these expenses, they will be added to your loan, and interest will be unnecessarily charged. 

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