Why is the price charged for Legal Fundings higher than traditional bank loan rates?
Traditional bank loans and legal funding are two very different types of transactions. ALFA Members do not provide loans, and therefore traditional bank loan interest rates should not be compared to the pricing of legal funding transactions. However, the price for a legal funding is higher than the interest rate on a loan because the funding companies are taking a far greater risk of being paid back on a legal funding than the risk a bank takes on a loan. For example, if a person takes out a bank loan to buy a car but can’t continue to make payments to repay the loan, the bank can repossess the car and sell it to pay the loan themselves. In contrast, in the case of a non-recourse funding, if a client loses their case and therefore their ability to repay the funding, the client does not have to pay it back and the funding company loses 100% of their money.
