How Does the Interest Rate Work on Pre-Settlement Funding?

Pre-settlement funding rates are case-specific, not credit-based. Most reputable funders use simple interest. Rates are disclosed upfront in the funding agreement reviewed by your attorney.

Pre-settlement funding rates are not like bank interest rates. Because the product is non-recourse — the funder loses everything if the case is lost — rates reflect the risk of the case, not the borrower's credit profile. There is no credit check. Rates vary based on case type, jurisdiction, expected case duration, and estimated recovery. You will not find a single published "rate" because every case is underwritten individually.

Reputable funders use simple interest, which means interest accrues on the original advance amount, not on accumulated interest. Simple interest is significantly less expensive over time than compound interest, which snowballs. When evaluating a funding agreement, confirm whether the rate is simple or compound before signing. ALFA member funders are required to use simple interest.

Rates are disclosed in full in the funding agreement before you sign. Your attorney reviews these terms as part of the standard approval process. If you cannot understand the rate structure from the written agreement, ask your attorney to explain it — or consider a different funder. Any legitimate company will explain their terms clearly.

The non-recourse structure means a longer case timeline increases your total repayment, even with simple interest. A 30% rate on a one-year case results in a different dollar obligation than the same rate on a three-year case. Model out multiple timeline scenarios with your attorney to understand the range of potential repayment amounts before signing.

Source: ALFA Consumer Litigation Funding Code of Conduct — Rate Disclosure Standards. ABA Formal Opinion 484 (2019) on litigation funding and attorney review obligations.

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