What Is Lawsuit Lending?
After suffering a personal injury, it’s common to be short on cash. From medical bills your insurance does not cover to lost wages during your recovery and treatment, cash flow problems can impede your ability to recover. Many injured plaintiffs turn to lawsuit lending while waiting for their claims to reach a settlement. However, these loans can be predatory, so it is important to carefully assess your options so you can make a wise, informed decision.
What Are Lawsuit Loans?
Filing a personal injury lawsuit is an expensive, time-consuming process. Although you may reach a settlement early on, it often takes a year or longer for you to secure the compensation you need to pay for expenses you incur now. A lawsuit loan provides compensation to alleviate financial stress while you wait for a settlement.
In exchange, the lending company buys your right to a portion of your pending award. In some cases, the company may buy the right to your entire settlement. If you lose your case, you do not have to pay the loan back. This arrangement is tempting for many injured plaintiffs.
Pros and Cons of Lawsuit Loans
It’s clear that lawsuit loans can provide several advantages. They provide financial relief if you are unable to pay for expenses following your injuries, such as medical bills or rent payments. This breathing room provides more time for you to negotiate a fair settlement instead of accepting the first offer, which may be significantly lower than your actual case value.
However, the benefits often stop there. Lawsuit lending companies can charge exorbitant interest rates that can range from 2% to 4% per month, and if your case takes years to resolve, you may need to pay back double or even triple your original amount.
Additional disadvantages of lawsuit loans include the following.
- Lending companies typically only issue loans if they are confident that you will either win or settle your case. Since these entities are very picky about the cases they choose to accept, you may not find a provider
- Loan protection regulations do not always apply to lawsuit loans. These companies claim that lawsuit loans are not traditional loans since you do not have to pay the company back unless you win. Although these laws vary from state to state, fewer interest rate and disclosure regulations apply to lawsuit loan lenders, which can increase your risk.
- Since governmental bodies do not always regulate lawsuit loans, it is difficult to identify a reputable lender. You may apply for a loan with a company that does not treat its clients fairly, leading to additional financial harm.
If you are struggling with your finances while filing an injury lawsuit, you may have options outside of these loans to pay for your expenses. Medical liens, for example, pay for necessary medical care, which you will repay once you reach a settlement. Additional insurance coverage, such as personal injury protection (PIP), can also pay for certain losses while you wait for your case to conclude.
Regardless of your financial situation, you should always seek the advice of a personal injury attorney when filing a civil lawsuit. Your lawyer can explain the case process to you, evaluate your claim value, and discuss potential pathways to cover your expenses while waiting for a settlement. Contact your lawyer immediately after your accident to discuss your legal options and next steps.