Legal Funding vs Bank Loans

What Is a Loan?

When a person borrows money from a bank or other financial institution, it is called a loan, and the person is called a borrower.

Several key characteristics define a loan:

1. Repayment is absolute; there is no circumstance under which full repayment of all principle, all interest, all fees, and all penalties is not required, and is not legally enforceable
2. A pre-determined repayment schedule is absolute; any late or missed payments result in financial penalties and potentially, significant legal consequences as well
3. A pre-determined final repayment date is absolute; if the loan is not repaid in full on or before the final repayment date, it will result in financial penalties and potentially, significant financial and legal consequences as well
4. Approval requires excellent credit, verifiable income, and verifiable employment with a solid and verifiable work history
5. Approval requires collateral; usually real estate
6. Non-payment results in forfeiture of collateral, plus serious legal and financial consequences including judgments, wage garnishment, property forfeiture, etc.
7. Has the potential to cause decades of bad credit

The loan approval process can be tedious, complicated, nerve-wracking, time-consuming, and often disappointing.

• To start things off, the bank will try to pre-qualify or disqualify the borrower by ordering their credit reports and credit scores. The bank will then scrutinize the entire 7 to 10-year credit history on all three credit reports.
• Any derogatory information is a red flag and is usually an automatic deal-killer.
• Assuming they pass the initial credit check, the bank will require proof of, and then review and verify, all income sources and amounts for accuracy. They will also require proof of current income plus all checking, savings, investment, and retirement account balances, and their histories.
• Then they will repeat the entire process to review and verify employment history. The bank will also confirm that the applicant is currently employed and in good standing.
• Next, the bank will order, and then scrutinize, a background check on the applicant.
• They will also look for any life insurance policies over $150,000 or other assets the applicant may have failed to divulge on their application.
• After that, the bank will scrutinize, verify, and appraise the applicant’s house, personal assets, real estate, or other collateral. Collateral, by the way, cannot be sold, given away, or otherwise disposed of while the loan is active.
• Once approved, the borrower will sign a legally binding contract which obligates them to pay back, on a pre-determined, non-flexible monthly schedule, the entire principle, plus all fees and penalties, plus interest, no matter what.
• After the borrower accepts the money, their monthly repayment obligation begins almost immediately.

If even a single payment over the entire term of the loan is late, they incur a penalty fee. The delinquency is also reported to the credit bureaus which can damage their credit scores.

• If hardship strikes and they are late again or miss a payment, they incur more fees and penalties, and the borrower’s credit scores begin their long, slow decline.
• The borrower is then threatened with default if they do not pay the missed payments immediately.
• If they are ever unable to make their payments, for any reason whatsoever – sickness, death, disability, plague, unemployment, global pandemic, federal or state-mandated stay-at-home orders – the bank can declare the borrower in default and accelerate the loan.
• Accelerating a loan means the bank has exercised its legal right to demand full repayment of the entire outstanding loan balance immediately.
• When the borrower is unable to pay the full balance, the bank will then seize and take legal ownership of all property pledged as collateral. They will sell the property to recoup their money, and the borrower is powerless to stop any of this.
• If the collateral sells for less than the balance owed, it is called a deficiency. The bank’s lawyers will then go to court, provide evidence that the borrower defaulted on the loan, and that their collateral was insufficient.
• The judge will issue a deficiency judgment to the bank. The bank will, of course, report it to the credit bureaus to further destroy the borrower’s credit.
• The judgment also includes an insidious stipulation that allows the bank to accrue and collect a state-mandated interest rate (usually 8% to 12% per year) on the outstanding balance. This interest will continue to increase and bloat the balance for as long as the debt remains unpaid.
• Also, from that point on, the bank has the legal authority to monitor, track down, seize, and sell all items of value that the borrower owns.
• Judgments are renewable every seven years, so it is conceivable that the borrower will be haunted and hunted, for repayment of the loan for the remainder of their life.

That’s it. THAT is what a loan is, exactly.