How Legal Funding Impacts Case Strategy
Lawsuit loans provide a vital lifeline to plaintiffs facing financial hardship during lengthy legal battles. But while these loans offer much-needed cash before a case concludes, they can also influence how and when a case is settled. In this article, we explore the connection between lawsuit loans and settlement negotiations, and how legal funding can impact decision-making for both plaintiffs and attorneys.
What Are Lawsuit Loans?
Lawsuit loans are non-recourse cash advances provided to plaintiffs involved in ongoing litigation. Unlike traditional loans, they do not need to be repaid unless the plaintiff wins or settles their case. These funds are typically used to cover essential expenses like rent, medical bills, or lost wages during the litigation process.
Because they are repaid from the proceeds of a future settlement, lawsuit loans are structured to be low-risk for the borrower—but they often carry high fees or interest rates, which can significantly reduce the net payout a plaintiff receives if cases drag on for years after the funding date.
The Relationship Between Lawsuit Loans and Settlement Negotiations
While lawsuit loans can relieve financial pressure, they may also affect the settlement negotiation process in several important ways. Attorneys and plaintiffs must navigate these influences carefully to ensure the best outcome.
Pressure to Settle for More
One of the most direct effects of a lawsuit loan is that it reduces the plaintiff’s net settlement amount. After attorney fees, case costs, and legal funding are subtracted, the amount received can potentially be reduced dramatically.
Lawsuit loan opponents often argue that this financial dynamic often causes attorneys to push for a higher settlement to ensure the plaintiff walks away with meaningful compensation. A settlement that might have seemed fair before the loan may now fall short of expectations.
For example, if a plaintiff receives a $20,000 lawsuit loan on a case expected to settle for $100,000, and the loan grows to $30,000 with interest, the attorney may recommend rejecting any offer under $120,000 to ensure the client still receives a net payout.
This argument is common among lawsuit loan critics because they can then state lawsuit loans increase insurance premiums and drag out cases. However, legal system delays are not the result of lawsuit loans but the very reason for them. If compensation was instantaneous, plaintiffs would not seek funding in the first place.
Delaying Early Settlement Opportunities
Lawsuit funding is designed to reduce plaintiffs’ urgency to settle early, especially if the defendant is offering a low-ball settlement offer. This can be beneficial if the case has strong merits and is likely to improve with more time, evidence, or expert input.
However, because lawsuit loan balances accrue interest over time, a delay in settlement may backfire. If a case takes longer than expected, plaintiffs can encounter a situation where even a higher settlement brings little relief. This scenario is possible yet the trade-off is that plaintiffs’ immediate financial concerns are met when they would otherwise not be without these specialty financial transactions. It is not uncommon for plaintiffs to encounter credit problems, foreclosure, eviction and other financial situations arise simply because of their involvement in legal proceedings.
Changing Plaintiff Expectations
Receiving lawsuit loans sometimes alter a plaintiffs’ mindsets. They may feel empowered to demand a higher settlement, even if the case value doesn’t support it.
Attorneys often find themselves in the difficult position of explaining that:
- The case value hasn’t changed.
- The funding was an advance—not a bonus.
- Taking too much in funding can make it harder to settle reasonably.
Attorney’s Ethical Responsibilities
Attorneys have an obligation to act in their client’s best interests—not the lender’s. Even when a lawsuit loan exists, lawyers must provide objective legal advice based on the facts and merits of the case.
However, attorneys must also consider:
- How the loan repayment affects the client’s net recovery.
- Whether accepting or rejecting an offer is truly beneficial given the funding balance.
- Explaining the consequences of waiting longer vs. settling now.
Lawsuit loans may require attorneys to weigh additional financial factors during settlement negotiations, which might complicate what would otherwise be a straightforward decision.
Potential Impact on the Defense’s Strategy
Though most legal funding agreements are not discoverable to the defense, it is possible the defense becomes aware of the plaintiff’s funding situation.
If the defense suspects a plaintiff received a lawsuit loan, they may adjust their strategy by:
- Delaying settlement in hopes of increasing financial pressure on the plaintiff.
- Making lower offers, expecting the plaintiff to accept a quick deal to stop loan interest from growing.
- Offer slightly more if they think it’s needed to satisfy the funding balance.
Either way, the knowledge (or assumption) of legal funding can influence the defense’s behavior, adding another layer of complexity to settlement talks.
If You Have Any Questions, Call 888-964-2224
WE ARE HERE TO HELP YOU!
Managing the Impact of Lawsuit Loans and Settlement Negotiations
The interplay between lawsuit loans and settlement negotiations requires careful management to avoid unintended consequences. Here are several best practices for attorneys and plaintiffs:
✅ Borrow Conservatively
Only take out the minimum amount needed to cover essential expenses. Over-borrowing can trap plaintiffs in a cycle where even generous settlements leave them with little money.
✅ Understand the True Cost
Legal funding terms are generally listed on the first page of the lawsuit loan contract. Always request a payoff estimate before negotiating a settlement.
✅ Communicate Clearly with Your Attorney
Attorneys need to understand how much was borrowed and under what terms so they can effectively calculate how different settlement offers will impact the final recovery.
✅ Consider the Timing
Sometimes, settling earlier—even for a slightly lower amount—results in a better net recovery because less interest has accrued on the loan. It’s important to weigh the value of time when considering offers.
Are Lawsuit Loans Worth It?
Whether a lawsuit loan helps or hinders settlement negotiations depends heavily on how it’s used.
Lawsuit loans are helpful when:
- Plaintiffs have an urgent financial need.
- The case is strong and likely to settle or win at trial.
- The loan is small, and cost is manageable.
They can be harmful when:
- The loan amount is too large for the case value.
- The plaintiff becomes unwilling to accept reasonable offers.
- Interest accumulates over many years, erasing a substantial part of the final settlement.
Ultimately, lawsuit loans are a tool. Like any tool, its usefulness depends on the how and when it is used.
Lawsuit Loans and Settlement Negotiations – Final Thoughts
The bottom line is that lawsuit loans can affect settlement negotiations. Legal funding can empower plaintiffs to hold out for fair compensation, but it can also introduce complexity into the negotiation process.
For attorneys, understanding the terms and timing of a client’s lawsuit loan is critical to advising them effectively. For plaintiffs, it’s essential to stay informed, ask questions, and borrow responsibly.
When used thoughtfully, legal funding can support plaintiffs through the most difficult periods of litigation—without compromising the integrity or outcome of their cases.
Why Choose Fair Rate Funding
You obviously have a choice in who you use for legal funding. We offer:
- Simple and Easy Process – Approval only on the strength of your case.
- Risk – Free Proposition – Only repay if you win your case.
- Rapid Approval and Funding – Approvals often within 24 hrs.
- Up Front Pricing – Absolutely no hidden fees.
Give us a call and learn about your options. We are here to help and are at your service.
