Personal injury lawsuits can take months or years to settle, and in the meantime you’ve got bills to cover and you may be losing wages due to the injuries you ended up with due to another person’s negligence. If you are involved in a lawsuit and you’re waiting on a settlement, you may be able to get an advance on your settlement if you have a strong enough case.
Situations will vary case by case, but in general, if you are in reasonably good financial shape right now, it is far more advisable to wait until your settlement comes through before borrowing against the lawsuit settlement. Why? At its core, if you already have the money, don’t borrow what you don’t need. It can end up needlessly costing you more in the end.
That said, you may need money right now. This is perfectly understandable, particularly if your medical bills far exceed what is covered by your health insurance. This is where cash advances on pending settlements or “lawsuit loans” come into play.
What is the difference between a lawsuit loan and a pending settlement advance?
There are two distinct ways of getting money ahead of a settlement. The first is securing a loan ahead of the settlement in anticipation of a successful outcome. Generally speaking, no company is going to offer you a loan and not take a cut. Regardless of whether or not you win or lose, your obligation to repay the loan will remain.
Advances on pending settlements are different. There are companies that will give you an advance on a settlement, even if you have not won yet and even if you don’t win the case. With an advance, if you don’t win you will be under no obligation to pay the money back. This may sound too good to be true, and sometimes it is. This is why you should always consult with your attorney before making this kind of decision.
Predatory lending is, unfortunately, also on the rise. Always inquire about interest rates up front to avoid getting ripped off. Please visit Silver Dollar Financial for more information about getting an advance on your pre-settlement funds.
Don’t get involved in advances or lawsuit loans without talking to your attorney first
If you do choose to get an advance or are just considering it, seek your attorney’s advice and let them help you make a decision. Oftentimes, your attorney may have direct experience dealing with lawsuit loan companies through previous clients.
Your lawyer may be able to tell you which lenders are good and which ones to avoid. They may also tell you to avoid lenders entirely because it’s not the right choice for your circumstances.
How can a company afford to risk an advance on a settlement without demanding that I pay it back if I lose?
While it is taking a gamble on offering the loan, the company is going to assess your lawsuit before offering the advance. They will gauge your likelihood of success. Some companies offering advances will only do so for certain kinds of lawsuits. The kinds of lawsuits that most often qualify for loans include:
- Medical malpractice
- Defective product
- Wrongful death
- Vehicle accidents
- Workplace injuries
- Other types of personal injuries in which another individual is clearly at fault
These companies will always charge you interest on the amount that you have to pay back after winning the settlement. For example, if you win $500,000 in two years but borrow $100,000 now, you’re probably going to win up paying something in the ballpark of $120,000 back. Oftentimes, your structured payments will be monthly.
Lawsuit lenders are essentially taking a risk by gambling on the success of your case. That’s why they do their due diligence before they’ll offer you funding. If they feel like you’re going to win, it’s worth it to them to take a chance and loan you the money because the interest makes it worth their while.
Interesting related article: “What is a Lawsuit?“