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Being involved in a lawsuit and seeking financial compensation can be a difficult and overwhelming experience. While your legal battle is ongoing, you still need to keep up with your other obligations. Likewise, bills and living expenses keep coming, and you might face additional expenses related to your case. Thereby, putting a lot of financial stress on you, especially if you’re unable to work due to an injury.
When in such a situation, lawsuit loans and traditional bank loans are among the available options that can provide you with the much-needed funds to pay bills and meet your financial needs. But what are the differences between these two financial options, and which one may be right for you?
Whether you’re considering a lawsuit loan or a traditional bank loan, it’s important to have all the facts before making a decision. In this article, we will explore some of the differences between these two financial options, including how they work, who can get them, and what to watch out for.
What are Lawsuit Loans?
Lawsuit loans, also called legal funding or pre-settlement funding, are cash advances that are available to plaintiffs who are involved in lawsuits. For example, if you were injured in an auto accident and filed an insurance claim or lawsuit against the at-fault driver, you might be eligible for a lawsuit loan.
Essentially, getting a lawsuit funding will be based on the merits and expected outcome of your case. It is non-recourse, and you only need to repay if you win your lawsuit and receive financial compensation.
What are Traditional Bank Loans?
Traditional bank loans can be described as money you borrow from a bank or credit union. These loans can be used for many purposes, like buying a car, starting a business, or paying for education. Also, you will be required to pay back the loan over time, usually with interest.
Generally, traditional bank loans are based on your ability to repay the loan. This is why banks look at requirements such as your credit score, income, and job history. Unlike lawsuit loans, you’re responsible for paying back a bank loan regardless of the outcome of your lawsuit.
Differences between Lawsuit Loans and Traditional Bank Loans
Here are some of the differences between pre-settlement loans and traditional bank loans:
Getting the Money (Funds Availability)
Lawsuit loans are designed to provide quick access to funds. If you’re approved, you can get your cash advance within 24 to 48 hours. This can be crucial if you’re facing urgent expenses like medical bills, rent, or utilities.
On the other hand, getting a bank loan usually takes longer. The application process can involve several steps, including filling out an application, providing documentation, waiting for the bank review, meeting with a loan officer, and so forth. The entire process may take several weeks.
Risk of Personal Liability
One of the biggest advantages of lawsuit loans is that they’re “non-recourse.” This means if you lose your case, you don’t have to pay back the loan. The legal funding provider takes on this risk when they give you the money. Conversely, with bank loans, you’re always personally liable for the debt. If you can’t pay back the loan, the bank can take legal action against you. They may garnish your wages or seize your assets.
Employment, Income Verification, or Credit Requirements
Furthermore, lawsuit loan companies typically don’t look at your credit score, employment status, or income. They’re more interested in the details of your lawsuit and how likely you are to win. In contrast, banks will carefully review your financial situation. They’ll check your credit score, verify your income, and look at your employment history. If you have a low credit score or unstable income, you might have trouble getting approved for a bank loan.
Eligibility
For lawsuit loans, eligibility is based on the merits of your legal case. The funding company will look at factors like:
- The type of case (e.g., personal injury, slip and fall, car accident, hernia mesh)
- The expected settlement amount.
- The strength of your evidence.
- How long it may take your case to settle.
- The reputation of your lawyer.
Conversely, eligibility for bank loans is based on your financial situation. The bank will consider:
- Your credit score
- Your income and employment history
- Your existing debts
- The value of any assets you’re using as collateral
- Out-of-pocket or Monthly Payments
With lawsuit loans, you typically don’t make any payments until your case settles. There are no monthly repayments to worry about. This can be a huge relief if you’re already struggling financially. Conversely, bank loans almost always require regular payments, usually monthly. Missing payments can result in late fees, penalties, and damage to your credit score.
Interest Rate
Many lawsuit loan companies charge a flat fee instead of interest. This fee is added to the cash advance you receive, and you pay it all back when your case settles. In contrast, bank loans charge interest, which is calculated as a percentage of your loan balance. This interest can be fixed, variable, or compound over time, meaning you pay interest on the interest.
Flexible Use of Funds
With a lawsuit loan, you can use the money for any purpose. Whether you need to pay medical bills, cover living expenses, or hire expert witnesses for your case, the choice is yours. Conversely, some bank loans have restrictions on how you can use the money. For example, a mortgage loan must be used to buy a house, and a car loan must be used to buy a car.
Repayment Process
For lawsuit loans, repayment is simple: when you win your case, you pay back the loan plus the agreed-upon fee from your settlement. If you lose your case, you don’t pay anything. On the other hand, bank loan repayment involves regular payments of both principal and interest over a set period.
Conclusion
Choosing between a lawsuit loan and a traditional bank loan depends on your specific situation. Lawsuit loans can provide quick, risk-free funding when you’re in the middle of a legal case. Banks require a strong financial profile and carry the risk of personal liability.
Before making a decision, carefully consider your needs, talk to your lawyer, and make sure you understand all the terms and costs involved. Remember, the best choice is the one that helps you meet your immediate needs without putting your long-term financial health at risk.
Need Affordable Lawsuit Funding? Call Us Today
If you are facing financial instability while your case is ongoing, you may apply for risk-free legal funding. Contact us at High Rise Financial today to schedule a one-on-one consultation. We offer affordable, non-recourse settlement loans. Call us at (866) 407-6404 today to apply for free.