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Navigating the Maze: Settlement Funding vs. Traditional Loans When Facing a Lawsuit

Updated: Jan 30

Settlement Funding vs. Traditional Funding

If you are a party to a civil or commercial dispute, you may have to deal with a lot of stress and uncertainty. A civil or commercial dispute is a legal conflict that arises from a breach of contract, a tort, a fraud, or a violation of your rights. Examples of such disputes include personal injury claims, consumer complaints, business disputes, property disputes, and intellectual property disputes. These disputes can have serious consequences for your health, finances, reputation, and future prospects. You may have to spend a lot of time, money, and energy to pursue or defend your case in court or through arbitration. You may also have to wait for months or even years before your case is settled and you receive the justice you seek. During this period, you may face financial hardships and difficulties in meeting your living expenses and other obligations. How can you overcome this challenge? You may have two options: traditional loans and settlement funding. But what are the benefits and drawbacks of each option, and which one is more appropriate for your situation? In this article, we will compare and contrast each option, and help you make a wise and informed decision.

Traditional Loans: The Familiar Friend

Banks and credit unions are our go-to for financial needs, so applying for a traditional loan might seem like the natural course of action. You get access to upfront cash, albeit with fixed interest rates and monthly repayments regardless of your lawsuit's outcome. Here's a breakdown:


  • Familiar and straightforward process: Application procedures are standardized and widely understood.

  • Potential for larger loan amounts: Depending on your credit score and collateral, you may access higher sums compared to some settlement funding companies.

  • Fixed repayments: Predictable monthly payments can help with budgeting and financial planning.


  • Strict eligibility requirements: Good credit score, stable income, and collateral might be mandatory for approval.

  • Risk of debt burden: Repaying the loan becomes your responsibility regardless of the lawsuit's outcome, even if you lose.

  • Time-consuming process: Getting approved can take weeks, which might not be ideal when facing immediate financial pressure.

Settlement Funding: The Risk-Shifting Alternative

Settlement funding companies offer a different approach. They advance you a portion of your potential settlement in exchange for a fee, reducing your immediate financial stress. However, unlike traditional loans, repayment hinges solely on your case's success. Let's delve deeper:


  • No credit checks or collateral: Your financial history or lack of assets might not be a barrier to accessing funds.

  • Non-recourse funding: You only repay the advance plus fees if you win your case. If you lose, you owe nothing.

  • Quick access to cash: Approval processes are often faster, providing quick relief during financial hardship.


  • Higher costs: The fees, typically a percentage of your settlement, can be significantly higher than traditional loan interest rates.

  • Limited funding amounts: Advance amounts might be capped depending on the potential value of your lawsuit.

  • Impact on settlement: Funding companies have a legal stake in your case, which might influence settlement negotiations.

So, Which One Should You Choose?

The answer depends on your unique circumstances and financial priorities. Here's a quick guide:

Choose a traditional loan if:

  • You have good credit and stable income, making repayment manageable.

  • You need a larger sum of money.

  • You prefer predictable monthly payments and want full control over your case.

Choose settlement funding if:

  • You face financial hardship due to the lawsuit.

  • Your credit score or lack of collateral hinders access to traditional loans.

  • You prioritize peace of mind from not owing money if you lose your case.

Making the Informed Choice

Beyond this initial assessment, remember to:

  • Consult your attorney: Their expertise can guide you towards the option that best aligns with your legal strategy and financial needs.

  • Compare funding companies: Fees and terms vary, so shop around and find the most competitive offer.

  • Understand the full cost: Factor in all fees and potential impact on your settlement to make an informed decision.

Navigating a lawsuit is already challenging, and financial strain shouldn't exacerbate it. By understanding the strengths and weaknesses of both traditional loans and settlement funding, you can make the right choice to weather the storm and emerge victorious, on your terms.

Remember, the best option is the one that empowers you to face the legal battle with confidence and financial security.


Q: Can I apply for both traditional loans and settlement funding simultaneously?

Yes, you can explore both options simultaneously to determine which aligns better with your needs.

Q: How quickly can I access funds with settlement funding?

Approval processes are often faster, providing quick relief during financial hardship.

Q: Will my credit score affect my eligibility for settlement funding?

No, settlement funding companies usually do not perform credit checks.

Q: Can settlement funding companies influence my legal strategy?

While they have a legal stake in your case, your attorney should guide your legal strategy independently.

Q: What happens if I lose my case with settlement funding?

With settlement funding, you owe nothing if you lose your case.


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