Lawsuit Loans: Answers to Frequently Asked Questions
You have been unable to work since the accident that left you with severe injuries requiring extensive medical care. Even though you trust the reassurance offered by your personal injury attorney that the lawsuit against the party that caused you to be injured will end in a favorable settlement or judgment in your favor, it has become a struggle trying to find money to keep a roof over your head and food on the table.
A lawsuit loan gives you the money needed to stay afloat with a cash advance against the settlement or judgment. One thing to keep in mind, however, is that lawsuit loans are not for everyone. You need to do some research to become better acquainted with them and compare lawsuit loans offered by different companies to understand how they work and get the best deal.
Here to get you started are answers to some of the most frequently asked questions about lawsuit loans. Use them to get started with your research and to learn whether getting a cash advance is the answer to your financial challenges.
What are lawsuit loans and how do they work to help plaintiffs?"Lawsuit loan" is one of several names given to a relatively new financial concept that offers plaintiffs with pending personal injury lawsuits the opportunity to take a cash advance against a future settlement or judgment in the case. Other names used in place of or in addition to lawsuit loans include:
- Pre-settlement funding.
- Pre-settlement cash advance.
- Litigation funding.
- Lawsuit cash advance.
- Lawsuit funding.
A company advancing cash to you as a lawsuit loan agrees to be repaid from the judgment or settlement awarded to you in the case. The funding company makes money by charging interest and fees on the money advanced to you.
It does not take long before the income lost from missing work recovering from injuries suffered in an accident create financial hardship. As you struggle to cover normal living expenses, you get hit with the additional burden of bills pouring in from doctors, hospitals, and other medical providers.
Instead of struggling until a personal injury lawsuit settlement or judgment, lawsuit loans give you immediate access to a portion of the anticipated value of the award. Getting the money to pay bills and eliminate financial pressures has an important secondary benefit.
Insurance companies know that financial pressures may force a plaintiff to accept a settlement for less than the true value of a claim simply to get money to meet current expenses. A cash advance that eliminates the pressure on a plaintiff gives a personal injury attorney the time needed to negotiate for a better settlement or to take a case to trial when an insurance company fails to act in good faith during settlement discussions.
How much does a lawsuit loan cost?A company offering to advance money to you based on the value of a pending lawsuit makes money through the interest and other fees it charges. Terms of the loans vary depending on the company you apply to for the cash advance, which accounts for some of the difficulty predicting the cost to a borrower. Some of the factors that determine what your final cost will be include the following:
- Interest rate charged: A general lack of government oversight of the pre-settlement funding industry means that companies have leeway to charge whatever fees and rates of interest they believe compensates them for the risk of losing the money they advance if the case does not end with a settlement or judgment in favor of the plaintiff. Interest rates are substantially higher than you would pay to a bank for a traditional loan.
- Simple or compound interest: If a company charges simple interest, you only pay interest on the amount of the advance. When compound interest applies, the company charges interest on the principal and on the interest. Lawsuit loans with compound interest cost more than those with simple interest.
- How long it takes for the settlement or judgment: You pay interest until the cash advance is repaid, so the longer it takes for the case to be settled or to go to trial, the more it will cost you in interest.
You need to shop around and carefully review the interest and other charges companies impose for the money advanced in order to determine what your final cost will be. Get help from your personal injury lawyer in deciding.
Who can apply for a lawsuit loan?Anyone with a pending lawsuit seeking monetary damages, such as a personal injury claim, may apply for a lawsuit loan. Employment discrimination and claims based on a violation of rights under federal or state civil rights laws may qualify for lawsuit funding.
The credit worthiness, income and assets owned by the applicant for a lawsuit loan do not factor into the approval process because the lender does not look to the applicant for repayment. The underwriting process for lawsuit funding exclusively focuses on the value of the lawsuit and the likelihood of a judgment or settlement in favor of the plaintiff.
What is the process of applying for a lawsuit loan?Most companies offering lawsuit funding let you apply online by completing a relatively simple application that asks for contact information for you and for the attorney handling the lawsuit. The company gets all of the information it needs to evaluate the lawsuit from your attorney.
The evaluation or underwriting process looks at the type of lawsuit and the damages sought on your behalf. It also looks at the strength of the case in terms of the evidence proving fault of the party being sued and proof of the damages for which you seek monetary damages.
The lawsuit loan company estimates the value of the anticipated judgment or settlement. The amount the company will advance to you represents a percentage of the value it places on the case.
When will I receive my money from the lawsuit loan company?A common theme of most of the advertising for lawsuit funding stresses how quickly applications can be approved and the money advanced to you. Approval times seem to range from 24 to 48 hours, but it depends on how quickly the funding company gets the information needed from your attorney to evaluate the lawsuit. The cash advance can be generated within 24 hours of approval of your application.
How do I know if a lawsuit loan is the best option for me?The cost of taking a cash advance against the future settlement or judgment in a lawsuit is generally the primary drawback to a lawsuit loan. You need to take the time to understand the terms and costs associated with lawsuit funding, and discuss them with your lawyer in order to determine if it is the best option for resolving the financial challenges you face.
Jared Stern is an experienced financial professional with six years of experience in the pre-settlement funding industry. After graduating from UC Berkeley with a degree in economics in 2014, Jared began his career in Morgan Stanley's mergers and acquisitions investment banking division. After working with another pre-settlement funding company for two years, Jared founded Uplift Legal Funding in 2017 to give injured plaintiffs a better choice in lawsuit loans.
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