Simple vs. Compounded Interest For Pre-Settlement Funding
Let’s say you were in a car accident and you’re waiting for an estimated settlement of $10,000 minus attorney fees and medical bills. But you need money now to pay bills. You could apply for a pre-settlement funding advance of $1,000.
If the interest rate is simple interest at 5%, after six months you would owe $300 in interest on top of the $1,000 advance. So you would owe a total of $1,300 after six months, plus loan fees.
If the interest rate is compound interest at 5%, after six months you would owe $340.10 in interest on top of the $1,000 advance. So the total amount you would owe after six months is $1,340.10, plus loan fees.
It’s important to remember that pre-settlement funding is not a loan, but a cash advance on your settlement money. And it’s important to read and understand the terms of the advance before agreeing to it.
Frequently Asked Questions
No, pre-settlement funding with simple interest is not a loan. It is a cash advance on your settlement money, which means that you will not have to pay it back if you lose your case. However, if you win your case, you will need to pay back the principal amount along with any interest that has accrued based on the simple interest rate.