Key Takeaways:

  • Lawsuit loans provide funding before your court case settles
  • Pre-settlement loans often have high interest rates and costs
  • You don’t have to repay lawsuit funding if you lose the case
  • Companies don’t consider your credit for lawsuit settlement loans

Needing money while undergoing a personal injury claim and lawsuit can be stressful. If you can’t work or your income doesn’t cover the unexpected expenses resulting from your accident, you may wonder how you’ll get the funds.

Pre-settlement loans may provide early access to funds you earn from personal injury cases, but they are expensive. Check out the pros and cons of lawsuit loans to determine if they are the right choice or if other funding options are better.

What are Lawsuit Settlement Loans?

Lawsuit settlement loans are a funding option for plaintiffs involved in a personal injury lawsuit. They provide access to funds long before you receive the expected settlement money. While they have the name ‘loan’ in the title, they aren’t your typical loan.

Lawsuit settlement funding is more like a cash advance on your expected earnings. They are non-recourse, which means you aren’t expected to repay the amount advanced if you don’t win the case. If you win, the amount borrowed, plus applicable fees must be paid from the settlement funds after attorney’s fees, court costs, other legal fees, and any applicable liens from medical bills. This leaves you with much less of the settlement amount.

A Lawsuit Settlement Loan Example

You file a lawsuit for $200,000 for a personal injury you suffered after a car accident and didn’t feel you received adequate compensation from the person at fault. Your attorney believes the case will take 12 months, but you need the money sooner because you are unable to work. You apply for a pre-settlement loan for $50,000 plus fees of $20,000 for a total repayment of $70,000. You don’t have to pay the loan back until the case is complete.

After settlement, the attorney and legal fees plus medical liens total $75,000. From the $200,000, that leaves you with $125,000. From that amount, you must repay the lawsuit funding company $70,000. You walk away from the settlement with $55,000 of the $200,000 lawsuit.

Who Needs a Lawsuit Loan?

Choosing a lawsuit loan is a personal decision because, as you can see, it depletes the cash you receive when the court awards the settlement. However, lawsuit cash advances or loans are sometimes the only way to get through the lawsuit process.

While anyone can apply for a lawsuit loan, people in the following situations often need them most:

  • Unable to work due to the personal injury sustained and doesn’t have other income
  • Cannot afford living expenses due to the trauma experienced from the injury
  • Your lawsuit is expected to drag on for months or years, and you need the settlement

For example, if you filed a suit after a serious accident, but your lawyer tells you that your case is complex and the judge will likely drag it out over a year or longer, you may need access to the funds faster. Rather than hastily accepting a settlement, you can hold out for a fair settlement and have early access to a percentage of your funds.

What Happens if You Lose the Case?

Because lawsuit loans are non-recourse, you are not responsible for repaying the loan if your case doesn’t go as expected. This sounds like good news, but it has its downsides.

When a lender doesn’t have a guarantee or collateral, if there’s no repayment, they are at risk. Because of this, loan funding companies must be selective about the loans they fund, only choosing those that are more of a ‘sure thing.’ This often means the other party has already assumed liability or the evidence is so open and shut that there’s no denying how the case will end.

What You Must Know About Lawsuit Loans

  • They are expensive: Companies don’t lend money because they feel nice. They want to make a profit, and because of the risk lawsuit funding creates, most lawsuit loan companies charge excessive fees or interest.
  • All cases don’t qualify: It’s not enough to say you have a personal injury pending lawsuit to get a lawsuit cash advance. Loan companies do their due diligence to ensure you are likely to win the case and get approved.
  • Loans aren’t regulated: Unlike traditional loans from a bank or lender, lawsuit loans aren’t regulated. This allows companies to offer pre-settlement lawsuit funding to charge high fees or rates, taking advantage of people in dire situations.
  • Attorneys don’t like lawsuit loans: Many attorneys dislike pre-settlement loans because of the high cost to their clients. However, many also believe these types of loans interfere with settlement negotiations and put less money in the plaintiff’s pocket.

Pros of Pre-Settlement Funding

Going through a personal injury lawsuit can be stressful and expensive. Lawsuit funding companies try to help people in this situation with pre-settlement funding. Here are the advantages:

  • Provides peace of mind: Knowing you have the funds available to cover your daily expenses and monthly bills can aid your recovery because financial stress can be debilitating.
  • Room to wait for a better settlement: With a settlement loan, you can avoid the desperation to make a rash decision, such as accepting a settlement you otherwise wouldn’t accept.
  • Non-recourse funding: If you don’t win your case like your attorney predicted, you aren’t responsible for repaying the settlement loan.
  • Credit history doesn’t matter: Lenders don’t base your loan approval on your credit history or income. They focus on the case and your chances of winning instead.

Cons of Pre-Settlement Funding

Dealing with personal injury or civil lawsuits is stressful and may cause you to make decisions that aren’t in your best interest. Here are the downsides of pre-settlement funding:

  • No regulation: Most states and cities don’t regulate cash advance loans like traditional loans. This allows lawsuit funding companies to take advantage of the situation and charge excessive fees.
  • Interest rates are high: If you choose a company that charges interest versus a flat fee, the interest costs increase each month or year the case is outstanding.
  • Finding a reputable lender is challenging: The lack of regulation and excessive fees companies can charge puts you at risk of scam artists and predatory lending during a vulnerable time.

Typical Government Protections You Miss With Litigation Funding

Government leaders at the federal and state levels try to provide consumer protections for large purchases. Common protections include when buying a car, house, post-secondary education, or borrowing funds for personal needs. However, this doesn’t include cash advances from lawsuits.

The protections you give up by choosing an unregulated loan include:

  • Interest rate limits: Many states have interest rate limits that lenders can charge for specific loan types. This prevents lenders from taking advantage of consumers when they need financing for basic needs.
  • Loan term disclosure requirements: Many federal and state departments control how lenders advertise and disclose important information, including interest rates, fees, and repayment terms.

Alternatives to Lawsuit Loans

Lawsuit settlement loans aren’t the only option when you need money in an emergency or to cover daily living costs while you recover. Here are a few options to consider for a lawsuit loan alternative:

  • Car title loans: If you own a car (not totaled) and don’t carry loans on it, you may borrow against its value. Car title loans are meant for emergencies and are often funded the same day or the next business day. They don’t require good credit; they rely on the car’s value and your ability to repay the loan. Unlike lawsuit loans, they require monthly payments.
  • Borrow from friends or family: Your friends and family likely know what you’re going through and may be willing to provide financial support. If you need money to cover the daily cost of living or to pay for a large expense, they may be able to provide funding. Like you would with a bank, create a contract that includes the repayment terms to avoid hurting your relationship.
  • Borrow from your 401K: If your company allows 401K loans, you may be able to borrow from yourself. These loans require paying interest, but the money goes back to your retirement account. Most companies allow up to five years to repay the loan, and while it reduces your retirement fund, it doesn’t affect your lawsuit settlement.

FAQ

Are Lawsuit Loans Worth It?

Lawsuit loans can be worth it in certain situations. Exhausting all other options to cover your daily or major expenses is key. If you can’t find an alternative, look for legit lawsuit funding companies that don’t overcharge compared to others in the lawsuit funding industry.

Can I Borrow Money if I Have a Pending Lawsuit?

Not every person with a lawsuit can borrow money against the potential settlement. Funding companies must evaluate the case, its potential, and how much you need to borrow to determine if you are a good candidate for an advance on your settlement funding.

Is a Settlement a Loan?

A lawsuit settlement isn’t a loan. It’s money you receive as a reward for the damages you experienced. From the settlement, you’ll likely pay attorney fees, court costs, and any outstanding medical expenses that resulted from the incident.

Does a Lawsuit Hurt Your Credit?

The credit bureaus don’t report lawsuits, so you don’t have to worry about a lawsuit hurting your credit whether or not you win.

Final Thoughts

Not having enough money to cover expenses while going through a lawsuit can be frustrating and scary. Fortunately, there are options, including a cash advance before your lawsuit settles, borrowed funds from friends and family, a 401K loan, or an auto title loan.

If you’re unsure how to make ends meet, compare your options and choose the one with the most affordable terms while providing the necessary funds. Apply online to find out how a title loan may help. You’ll receive a free, no-obligation quote to compare to your other legal funding options.

Written by Samantha Hawrylack

Written by

Samantha Hawrylack

Samantha Hawrylack writes for our company and is an expert in personal finance. Sam received her Bachelors of Science in Finance and her Masters in Business Administration from West Chester University of Pennsylvania. She began her career in the financial services industry and shifted to an entrepreneurial role where she could directly impact clients. Sam has an impressive background in personal finance and business management.