If you haven’t heard the term ‘legal funding’, perhaps you know it by another name such as lawsuit funding or litigation funding. Regardless of how you refer to it, legal funding has grown into a prevalent financial option for individuals who are in the midst of legal battles. It has the potential to act as a lifeline for plaintiffs who are financially constrained. However, it is crucial to understand the costs involved. This article will give insight into the background on legal funding, its purpose, benefits and the often-overlooked aspect of associated costs.
What is Legal Funding?
Legal funding can be understood as a financial arrangement. The way it works is that a third-party funding company agrees to provide cash in advance to plaintiffs, In return, the third-party funding company receives a fixed portion of the potential settlement or court award. This money is then used by the plaintiff to cover legal fees and even living costs or any other costs that pop up as a result of the litigation process. The main reason that individuals would opt for legal funding over a traditional style loan is that legal funding is no-recourse. This means that the plaintiff only repays the third-party funding company if the legal case is won.
Allowing Plaintiffs to Pursue Claims Free of Financial Burdens
It’s a well-known fact that litigation can be a prolonged and costly process. Legal fees can accumulate and accumulate some more, reaching figures that the plaintiffs may not have initially budgeted for. Legal funding can level the playing field for plaintiffs who might not otherwise be able to pursue their claims due to their financial situations. This gives them the opportunity to pursue justice without the immediate burden of being lumped with legal fees which is undoubtedly one of the main advantages of legal funding.
Providing Plaintiffs with Access to Elite Representation
Legal funding also gives plaintiffs greater access to securing high-quality legal representation. As the financial pressure of immediately coughing up the funds to pay lawyers’ fees, individuals can hire experienced and skilled attorneys who may even specialize in a certain area and who will subsequently demand higher fees. The flow-on effect of this is increasing the plaintiff’s prospects for a favorable outcome in court.
Situations Where Legal Funding Commonly Occurs
There are a variety of civil litigation situations where legal funding is commonly sought out. For example, plaintiffs often apply for legal funding for personal injury cases, which can range from those that arise from car accidents, medical malpractice or workplace injuries. Other examples include employment discrimination cases, product liability claims and even certain family law disputes.
How the Costs Add Up
Legal funding can provide immediate financial relief for plaintiffs and the importance of this aspect cannot be understated. However, before entering into a legal funding agreement, there are associated costs that one ought to know about. One of the key costs that arises is the funding fee, a.k.a., the interest rate that the funding company charges. This fee is set by the funding company itself however, to provide a ballpark estimation, it can range from 15% to 60% annually.
Some legal funding agreements also include other charges. Some that are worth mentioning are the administrative fees and origination fees. As these can differ between funding companies, plaintiffs ought to carefully review and compare the various funding agreements they have access to.
Moreover, how long the legal proceedings last has a direct impact on the cost of legal funding. As you might expect, when a case takes longer to resolve, it will unfortunately cost more. The funding fee accumulates as do other expenses such as living costs, especially if the plaintiff is unable to work while the legal proceedings are ongoing. That’s why, plaintiffs should clearly use the expected timeline of the litigation process before entering into a binding legal funding agreement.
