In the previous article, we studied the historical pricing model of the litigation cash advance industry. We also discuss business dynamics that typically change the pricing of any business that exposes capital to profitability risks. Specifically, we mentioned how the settlement loan industry has evolved from a company that collects up to 10% of the litigation cash advance “interest” per month to a business that provides only 15% of “funds” to applicants every six months.
In this entry, we examine the costs associated with litigation funds and analyze costs from the perspective of applicants who urgently need cash for whatever reason. From this perspective, we can more accurately assess the costs associated with such economic relief – only for those who have pending litigation.
Since each person's situation is different, the cost of obtaining litigation loans or pre-clearing funds and the future earnings of individual outstanding cases can only be weighed on a case-by-case basis. So perhaps the best way to illustrate this is to use a hypothetical example.
Litigation capital cost – hypothetical example
A 36-year-old plaintiff found in the lawsuit that he was injured because of another person’s negligent driving, which made him unable to work and could not maintain his or her family’s life. Since 2008, the plaintiff has exhausted all other means to obtain financial relief. He borrowed money from friends and family. He extracted the home equity loan from the value of the home. He has received a disability allowance from his work, and his other "welfare" does not include his monthly expenses. Currently, his mortgage and property taxes are owed for five months.
Because the imminent foreclosure process is imminent, the plaintiff's choice is limited. On the one hand, he can file for bankruptcy, which can save his house, but it will destroy his years of credit. He can hire a lawyer for this, but the lawyer needs to pay in advance for his time and expertise.
Another option is to get litigation funding to help him solve liquidity problems. Let us briefly analyze it in depth.
We have discussed the costs associated with litigation cash advances. But what about the cost of not being able to pay bills on time or not paying bills at all? We may not be able to accurately quantify costs, but we can at least identify some potential problems. For example, a mortgage default may result in the homeowner generating the following "cost."
1. Remove from the house. The defaulting party must then find a shelter. Usually, the rental unit needs the rent for the first month and the last month as well as the deposit. This is the rent for the new tenant three months in advance. Of course, if the person has a three-month rent, he may at least postpone the process of foreclosure. Therefore, there is a liquidity problem above the existing issues. A person can easily anticipate a variety of “costs” associated with moving from a place of residence [eg moving expenses, additional fuel costs, storage costs, etc.].
2. Destroy the credit score. Whether you like it or not, this country is heavily in debt. Who owes who is the oldest in history and can be said to be the most profitable game. Getting credit is an integral part of the game and is a function of credit scores. Obviously, mortgage foreclosures will seriously hinder people from getting car loans, future home purchases, home appliances and even credit card credit. In addition, even if credit is provided, the interest rate charged will far exceed the other required interest rates. In our example, the above is just two "costs" for the person.
When considering the above, it is helpful to weigh the long-term effects of these events. The real question is how to accurately assess the cost and compare it to the cash advances for litigation in the case. Ultimately, the analysis depends on the individual situation. Fortunately, litigation financing is suitable for those who analyze and choose litigation loans as a possible solution. Thousands of people make this choice every day. Thank you for your interest in the pre-settlement loan business.