Lawsuit Loans: Pros and Cons

After you have been hurt in an accident, you may be left unable to work and your expenses may be astronomical. However, a lawsuit loan would help you wait until you reach a settlement or you receive a jury award.

The lender purchases the right to a portion of your settlement or jury award in exchange for an advance on the money that you will eventually receive. The money you obtain from the loan could help you make ends meet while the case proceeds. Here are some considerations if you’re trying to decide if a lawsuit loan is right for you.

The Cons

While there are some compelling reasons to consider a lawsuit loan, everyone’s situation is different. This type of loan might not be your best course of action.

A Lawsuit Loan Will Cost You

A lender will charge you interest and a funding fee, so you will need to repay the interest plus the fee as well as the principle. This can mean that you will be paying your lender two or even three times the amount that you originally borrowed. You don’t have to worry about paying more than you receive in a settlement because you can’t be charged more than the amount of your settlement or your jury award.

The fact that lawsuits can take so long to end will mean that you will have to pay interest for that length of time. Be aware of how the lender calculates interest. Most lawsuit lenders charge you between 27% and 60% in interest every year. If you are approved for a $25,000 loan, the interest payment may be $12,500 for one year, and interest payments are compounded every month. Your case may take two years to settle, so the interest payment would be $32,000. This would be in addition to the $25,000 that you borrowed.

Not Every Lawsuit Qualifies for a Lawsuit Loan

These loans are risky for lenders because they are giving you an advance on a settlement or award that you may never receive. These lenders aren’t allowed to ask you to repay these loans if you lose your lawsuit or cannot settle the case. You could also receive an amount that is less than the lending company expected. In that case, you may not have to repay the entire amount.

For these reasons, not every lawsuit can qualify for a lawsuit loan. This can mean that you will be turned down by five or six lenders before you find one willing to offer you a loan.

It sounds bleak, but there are some advantages to lawsuit loans as well.

The Pros

If you’re unable to work after an accident, you may qualify for compensation to pay for your medical bills while you recover. That said, your case could take a long time to settle and your bills won’t wait.

Lawsuit Loans Provide You with Money While You Cannot Work

You may have been injured so seriously that you cannot return to work for an extended period of time. Insurance companies know that if you aren’t earning a living, bills will pile up and you may have to accept a low settlement offer. You might be tempted to take their first offer if you aren’t able to support yourself and your family. A lawsuit loan will give you early access to your expected compensation so you can continue to pay bills even when you can’t work.

If you’re looking for a loan for a non specific purpose just to tide you over financially, you should compare rates and make use of services that provide same day loans.

You Can Wait for a Larger Settlement

The insurance companies want to end your lawsuit as quickly as possible, but they want to make sure that they will pay you as little as possible. If you don’t accept their low offer, you may receive a much larger award after your trial ends. If you obtain a lawsuit loan, you can afford to wait for your trial to end or until the insurance company presents you with a decent offer. A larger settlement or award will also mean that you will have more money to repay your loan, and you aren’t risking anything if you wait.

If you’re thinking about a lawsuit loan, consider the pros and cons carefully. The pros may outweigh the cons in your situation. For many, lawsuit loans can ease the anxiety of waiting for a case to settle.