What Is a Settlement Loan?

A settlement loan is a cash advance against the settlement you expect from a lawsuit. There are two types of settlement loans: lawsuit loans and structured settlement loans. They each use future payments from a settlement as collateral.

Lawsuit Loans

With a lawsuit loan, you have not yet won the case that will eventually deliver your returns. As a result, this is seen as the riskier type of settlement loan. The lender agrees to advance you money to pay for the legal fees involved with your lawsuit. In return, if you win your case, you will pay a hefty interest rate to the lender, decreasing the earnings you actually gain from the settlement.

Structured Settlement Loans

If you have already won your settlement, you may be facing annuities instead of a lump sum payment. In most cases, it is advisable to simply allow the annuities to pay out over time. If you have an immediate and pressing need, however, you may receive an advance on these payments to cover your need in the present. You will pay interest on the advance, ultimately reducing the money you receive as a result of your settlement. However, emergencies do come up, and taking an advance with collateral is cheaper than taking an unsecured loan.

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