Legal Funding: A Lawsuit Loan or an Investment Part 1
Legal funding is not a loan but an investment . The important thing is determining whether a certain transaction involves an actual and substantial risk. Legal financing involves a certain amount of risk, which makes it an investment. It may be unusual to think of a legal case as something that is bought or sold. However, it is not like a stock or a real estate.
At all costs, loans are financial obligations that should be paid with interest. In case of a legal financial assistance, it is paid only if the litigant wins his or her case. Lawsuit funding companies take a risk on a lawsuit just as lending institutions take a risk on their debtors. This is why legal financing is a contingent non-recourse funding. It depends on the lawsuit’s outcome.
Effects of Legal Funding Mis-classification
The mis-classification of legal funds as a loan has several consequences due to the fact that consumer loans are highly controlled and regulated. Since loans are less risky than most investments , the rates of return are lower. However, since all legal funding solutions are only dependent on an ongoing case, legal funders charge higher rates in order to generate profits. If legal financing subjects to usury regulations, its current model will not work. As a result, legal funders will stop providing their services.
The Difference of a Usurious Loan and Legal Funding
An usurious loan has four elements that include:
1. There is an agreement to lend money.
2. The borrower has the obligation to pay the money without any contingency on another event.
3. The repayment rate is more than the statutory maximum.
4. There is an intention to be paid more than what is allowed in the usury law.
A lawsuit settlement funding does not apply to the second element because it is non-recourse. A litigant’s obligation is dependent on the outcome of the lawsuit, which is why they are legally free from any obligation to pay back their advances until they win the lawsuit. Most legal funders emphasize the second element in their agreements in order to distinguish their difference from a loan.
Although legal funders only invest on cases that have a chance of winning or settling, their services are true contingencies. Some may argue that there is not any risk in this kind of funding. However, placing your bets on an unknown outcome is equal to a risk.
Have you been injured at the fault of another and need cash? Would you like to know more how Pegasus can help you get a lawsuit cash advance? You can use the money any way you see ift. There are no employment or credit checks, no upfront fees. If you lose your case, you keep the money owe nothing. So complete the online application or call us toll free today. And remember the application process is free.
Submit an online application or call today for a free evaluation
.:About the author:.
James Sheridan is the Contracts Manager at Pegasus Legal Funding LLC and is responsible for the final stage of the funding approval process. James focus and priority is delivering to PLF’s clients the funds they need as quickly as possible