After an expensive and life-altering injury, many people turn to the courts for help recovering their losses. But after filing a personal injury lawsuit against the at-fault party, you may be shocked to learn it can take months or even years to receive financial compensation to help pay your bills.
You could be forced to dip into your savings or borrow money from family, or you could access funding advanced against your lawsuit’s settlement through a lawsuit loan. However, there are pros and cons to this alternative financing tool, so you should carefully consider whether it is the right choice for you.
What Is a Lawsuit Loan?
A lawsuit loan is not the same as a traditional bank loan that you must pay back with interest. Instead, it is a way for you to acquire a portion of the settlement you expect to get on a pending lawsuit.
There are several other names you may hear used in reference to this agreement type, including:
- Legal financing
- Litigation funding
- Pre-settlement advance
- Lawsuit cash advance
- Settlement funding
This funding arrangement gives you cash today in exchange for a promise to pay the funds back after winning your suit. It is a unique financing tool that offers several advantages to cash-strapped plaintiffs; however, there are potential pitfalls of which you need to be aware.
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Lawsuit Loan Disadvantages
Not everyone who has a pending lawsuit will be able to access legal funding, and for others, it may not be the best option for their situation. Watch out for the following lawsuit loan disadvantages when weighing your choices:
Many states in the U.S. put up legal hurdles that make it difficult, if not impossible, for plaintiffs living there to access lawsuit loans. For example, laws against third-party interference may prohibit or void some pre-settlement financing contracts.
High Qualification Standards
These agreements are non-recourse, which means financing companies have no way to get their money back if your case is unsuccessful. This can be a good thing for you, but it also leads to ultra-cautious lenders who will deny your application if your lawsuit’s outcome is uncertain.
Excessive or Hidden Fees
Some states regulate lawsuit financing agreements as loans, establishing rate and fee limits to protect consumers. Yet, other states have little to no regulation, opening the door to unscrupulous lenders who could charge excessive interest or tack on surprise fees.
Attorney Cooperation Requirements
Most, if not all, lawsuit loan companies will need to work closely with your attorney to access case details and collect their payment at the conclusion of your lawsuit. Your application will be rejected if an attorney does not represent you or your lawyer refuses to cooperate.
Lawsuit Loan Advantages
Fortunately, several positive aspects of litigation financing could make it an ideal solution for your situation. For example, consider the following lawsuit loan advantages:
Fast Availability of Funds
Unlike traditional loans that often require extensive personal qualification, lenders extend lawsuit funding solely on the merits of your case. Additionally, since they don’t need to run your credit report or check your financials, lenders can often process and fund your application in hours rather than days.
Used for Any Expense
Although some states stipulate that the funds cannot be used on legal expenses, typically, a lawsuit loan recipient can use the money for anything they choose. For example, the funds can help an injured person pay their medical bills and can be spent on other living expenses like rent or groceries.
No Risk to the Recipient
You are not taking on any risk when you accept lawsuit financing. Thanks to the non-recourse nature of the agreement, your repayment is taken directly out of your settlement. If you don’t win, you walk away and owe nothing.
Potential for Multiple Rounds of Financing
Lawsuit loan companies typically pay out approximately 10 to 20% of your anticipated settlement. If your circumstances change and your expected compensation increases, you may be eligible to access more money through an additional lawsuit loan.
Increased Leverage for Negotiations
A defendant’s first settlement offer is often much lower than the case is worth. If you struggle to cover basic living expenses, you may be tempted to accept any settlement to keep food on the table. Money from a pre-settlement advance gives you the freedom to hold out for a worthy offer.
How to Analyze Your Situation
Looking at the pros and cons of lawsuit loans like this can be eye-opening. Yet, it is critical to think about your situation closely. What are your needs right now? What will they be later? Here are a few factors to keep in mind.
What Are the Consequences to You for Waiting Until the Settlement Comes Through?
The key here is that waiting means you keep more of the settlement for yourself, and whenever possible, that is often the best thing to do. However, in many situations, individuals find themselves facing consequences such as an inability to pay their debts. If you do not have someone who can help you meet your financial goals in the next few months, and your savings are already depleted, it may be best to seek out a loan to help you.
What Will Happen to Your Credit if You Do Not Obtain a Loan?
Obtaining a settlement loan does not impact your credit in any way. However, if you fail to make payments on time and perhaps even find yourself unable to keep up with your mortgage, that will have a negative impact on your financial situation and should be carefully considered.
What Is the Cost to You?
Talk to your attorney to discuss your case openly. Find out what the realistic time frame is for your case to go to trial based on the past experiences they have had. Talk about the length of time after that lawsuit before you could anticipate receiving a settlement.
Talk to the lender about the cost of borrowing these funds to you. Sometimes, the dollars and cents of it all can provide more insight to you on what your best decision should be.
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Get to Know the Lender
Before you make a decision to use any lender for a pre-settlement loan, do some research on them to learn as much as you can about who they are and what they have to offer. Here are several key factors to learn about any lender you may consider:
- BBB Rating: Is the organization a member of the Better Business Bureau? If so, what is their rating, and what type of complaints, if any, have been noted about them?
- Look at Reviews: Take a few minutes to read through the reviews for the company on Google or other sites. This is not just about a 5-star rating but how they handle their business on these sites.
- Educational Support: It is a big decision to use these loans, and you need to be sure you have a lender who is willing to listen to you, answer all of your questions, and provide you with all of the detailed information you need to make a wise decision.
Take the time to learn more about any company you are considering working within such a vitally important situation. Find out who is behind them, how to use their services, and what makes them the best choice in pre-settlement funding for your needs.
Why You Should Choose High Rise Financial
Since pre-settlement funding is not as regulated as other financial products, you must do your homework and choose a reputable company like High Rise Financial. We offer cost transparency with no compound interest or surprise fees buried in the fine print so you can make an informed decision about what is best for you. Plus, We have 4.9 out of 5 stars on Google reviews, so you can be confident in the pre-settlement services we provide.
Contact us today to get started!