If you’ve filed a personal injury lawsuit and need cash, you may be considering a lawsuit loan (also called lawsuit financing, settlement financing, and lawsuit cash advances). Lawsuit finance companies heavily advertise lawsuit loans. But don’t rush into the first company you find. Lawsuit loans are very expensive; Make sure you understand the costs, decide if you really need one, and then shop around for the lawsuit funding with the best terms.
What is a lawsuit loan?
With a lawsuit loan, you borrow money against the judgement or settlement you hope to get from a lawsuit. These loans are particularly popular with personal injury claimants who lose income or incur large medical expenses due to an injury. Plaintiffs often seek a loan to cover housing costs, mortgage payments, car loans, or medical bills.
Consider other less expensive options.
Lawsuit loans are expensive. When you pay the lender with the proceeds of your settlement or judgement, you will repay the principal you borrowed plus a finance charge or interest payment that may be double or triple what you borrowed from the lender. You will not be required to pay more than you expect to receive in your judgement.
Other options for obtaining funds during your lawsuit.
You will save yourself considerable money in the long run if you can avoid taking out a lawsuit loan in the first place. Before you consider tapping into these, consider other resources like insurance proceeds, disability payments, or even help from friends and family. It might be worth approaching your credit union or neighbourhood bank for an instalment loan.
Do you qualify for a lawsuit loan?
Because the loan company is taking a substantial risk (you will not get your money back if you lose your case or settle for less than expected) it will only lend if it is confident that you will win your case or settle. agreement for a considerable amount.
When you apply for a lawsuit funding, the lender will contact your attorney to gather as much information as possible to evaluate your case. This process could take weeks and will require the cooperation of your attorney. You will likely need to follow up with the lender and their attorney to make sure the lender receives the necessary documentation to make a decision.
Find the best loan terms for lawsuits.
Once you have received several recommendations, contact each litigation finance company and do the following:
- Compare interest rates (or what lenders call “finance charges”). Because rates are generally high, this information can be difficult to find on websites. The company may also be reluctant to quote a rate until it has evaluated your case.
- Ask about application fees. Some companies charge just to consider your case while others will evaluate it for free.
- Ask how often the interest escalates. Many companies compound monthly, others compound more often. Because compounding means that you are paying interest on interest, the more often the interest is compounded, the more you will pay at the end of the case.
- Confirm that you will not be required to pay the lender more than the amount of your award or settlement, and that you will not pay anything if you lose your case.
- Remember that applying for the loan or requesting information does not require you to sign any document or make any commitment to the lender. If the lender is slow, seems reluctant to answer your questions, or reveal the terms of the loan, it’s time to find another lender.
Lack of regulation in the lawsuit lending industry.
Above all, keep in mind the following: For the most part, state and federal agencies do not regulate litigation finance companies in the same way that they regulate banks, credit unions, and even small finance companies. There are few restrictions on how much they can charge for their services and few requirements on how interest rates and other terms are disclosed.