A pre-settlement lawsuit loan grants you to take care of your increasing financial obligations while you wait for your personal injury case to be settled by pending lawsuit loans. While there are obvious advantages to demand loans, there are also costs. Learn more about how lawsuit loans work below.
Risk-free lawsuit loans, offered by various providers, work by advancing money to people who have filed personal injury lawsuits in exchange for a promise that they will repay the loan (plus interest and any other applicable costs) from the proceeds of their lawsuit.
How demand loans work
To be eligible for a lawsuit loan, you must first file a lawsuit. Once the lawsuit is filed, you can complete an application for a lawsuit loan from a loan company. The loan company will contact your attorney and evaluate your case. Because lawsuit loans are “risk-free” (meaning you don’t have to repay the loan if you lose your case), the lender should carefully examine your claim to make sure they like your chances of recovery.
Once you recover the proceeds from your lawsuit (either through a settlement or judgment), you will have to pay the lender the principal amount of the loan plus interest and fees (discussed in more detail below). Another way to think about demand loans is that a loan company is buying a portion of the proceeds from your future settlement.
Advantages of demand loans
The biggest advantage of a demand loan is that it puts money in your pocket almost immediately. Personal injury victims often face mounting medical and legal bills after an accident. Sometimes your injuries lead to depression and strained relationships, which can create additional financial burdens. On top of all of this, personal injury victims can be out of work and struggling just to meet their normal financial obligations. Because of this compromised position, a demand loan can serve as a much-needed financial lifeline.
A reputable lawsuit loan is “risk free.” This means that you do not have to repay the loan if you do not get the money back on your claim. This differs significantly from more traditional loans, which must be repaid in full regardless of what happens after the loan is made.
In fact, some lenders argue that lawsuit loans aren’t even technically loans because they don’t need to be repaid if the plaintiff doesn’t win or settle their case.
Additional time to negotiate
Personal injury lawsuits are often resolved quickly because the injured plaintiff desperately needs money to meet his financial obligations and cannot afford the lawsuit to drag on. Unfortunately, a well-advised defendant understands this weakened position and too often makes a low offer, knowing that the plaintiff will be tempted to accept it out of desperation.
Disadvantages of demand loans
Lawsuit loans can be expensive
The biggest disadvantage of demand loans is the high cost associated with them. Remember, loan companies are not reimbursed if the plaintiff who receives the loan does not win the case or does not reach an agreement. Because of this risk, loan companies must charge interest and other fees (such as application fees) to make sure they are profitable at the end of the day.
You can’t qualify
Another consequence of lenders only getting repaid if the claimant is successful is that the lenders will examine their case. If your chances of success are low, you may have trouble getting a loan.
Lack of regulation
Most consumer credit loans (such as student loans, mortgages, and credit cards) are regulated by the state and the federal government. These regulations generally address two things:
- The amount of interest that a lender can charge
- Information to be disclosed (and how that information should be disclosed)
Some things to keep in mind
Lawsuit loans can be a good option because they offer a financial lifeline while you try to settle your case. But demand loans have some risks. Keep the following tips in mind when shopping for a lawsuit loan:
- Ask about application fees
- Ask about interest rates (even if the interest is compound)
- Make sure the lender gives you the loan terms in writing
- Involve your attorney in choosing the loan company.
If you are considering a lawsuit loan, use our free online directory to locate an attorney who can help point you in the right direction.