Myths and Truths About Pre-Settlement Funding

Pre-settlement funding is frequently misunderstood. Common myths — that it is a loan, that it interferes with your case, that it requires good credit — are all false. Here is what is actually true.

Myth: Pre-settlement funding is a loan. Truth: Non-recourse pre-settlement funding is not a loan. If your case is lost, no repayment is owed. The advance is secured by your case proceeds, not by your personal assets or income. A loan must be repaid regardless of outcome; a non-recourse advance is not owed if the case fails.

Myth: Funders can interfere with your case or tell your attorney what to do. Truth: Funders are contractually prohibited from influencing case strategy, negotiation decisions, or settlement acceptances. Your attorney is your sole legal advisor. The funder has no role in the direction of your litigation and cannot override your attorney's advice or your own decisions.

Myth: You need good credit to qualify. Truth: Pre-settlement funding has no credit check. Your FICO score, credit history, and financial situation are completely irrelevant to the underwriting decision. Eligibility is based entirely on your case merits.

Myth: Pre-settlement funding will slow down your case. Truth: The funding process — approval and disbursement — is entirely separate from the litigation timeline. The funder has no ability to affect the speed of your case and no incentive to do so. Some plaintiffs worry that funders will push them to delay settlement to accrue more interest; reputable funders do not operate this way and are contractually prohibited from influencing case decisions.

Myth: Pre-settlement funding companies are predatory and unregulated. Truth: The industry is regulated in more than a dozen states through specific litigation funding statutes. Industry organizations like ALFA and ARC establish binding codes of conduct for members. Reputable funders are transparent about all costs and use simple interest. As with any financial product, research the funder before signing.

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