Simple vs. Compound Interest: How to Save Thousands
4 mins read
Published Apr 2, 2025
The Trap of Compound Interest
When you are shopping for pre-settlement funding, it is easy to just look at the monthly percentage rate. But the "rate" is only half the story. The real question is: How is that interest calculated?
Many funding companies use Compound Interest. This means they charge interest on the principal amount plus the interest that has already accumulated. In other words, you are paying interest on your interest. Over the course of a lawsuit that drags on for 2 or 3 years, this causes your balance to skyrocket, leaving you with very little money left when you finally win your case.
Why Simple Interest is the Fair Choice
Simple Interest is exactly what it sounds like. The interest is calculated only on the original amount you borrowed. It never grows on top of itself.
Let’s look at a quick example. If you borrow $1,000:
• With Simple Interest: The cost is fixed. If the interest is $30/month, it stays $30/month in Year 1, Year 2, and Year 3.
• With Compound Interest: That $30 becomes $32, then $35, then $40. By Year 3, you are paying significantly more each month for the same original loan.
At World Legal Funding, we believe in keeping more money in your pocket. We use clear, transparent terms so there are no nasty surprises when your case settles.
Read the Fine Print
Before you sign any funding agreement, always ask two questions:
1. "Is this simple or compound interest?"
2. "Are there any recurring administrative fees?"
Some companies will offer a suspiciously low "teaser rate" but hide the fact that it compounds monthly. Others charge "quarterly service fees" that add up to hundreds of dollars a year. We don't play those games. We want you to feel secure and supported, not exploited.
