If you have a pending lawsuit or a settled case and are waiting to be paid you may consider taking out a “lawsuit loan.” Lawsuit loans are not actually loans, but considered pre-settlement funding or post-settlement funding. They are an advancing of money on the future proceeds of a civil lawsuit, most commonly cases involving personal injuries.
Below are a few important tips you should know before blindly applying.
Tip 1 – Lawsuit Settlement Funding Should be Your Last Resort
If you have any means of borrowing money other than taking funding, you may want to consider that route before you consider lawsuit loans. Using up your cash or borrowing money from friends and family can be a more cost-effective way as lawsuit funding can be expensive.
The reason in that lawsuit loans are actually not loans because they are not repaid if the case is unsuccessful. Because of this, funding a lawsuit is risky for the “lender” because the case isn’t guaranteed, and a settlement may not cover all the expenses.
Since lawsuit lending isn’t cheap, you should explore all other options of cheap cash. If you use money in your bank account, you only lose the opportunity cost of earning on that money. Lawsuit loan pricing is normally higher than 30% per year and often even more expensive.
Tip 2 – Apply for Lawsuit Loans after Your Case has Developed
Most lawsuit funding companies will not advance a client money until 90 days after the accident took place. The reason for this rule of thumb is that it requires time to allow your case to develop before understanding the value. Variables such as the extent of the injury and available insurance coverage may not be immediately available. At a minimum, lawsuit loan companies will wait 30 days after the accident provided the documentation is provided.
Typically funding companies will provide advances up to 10% of what they believe the case is worth. For example, if they believe your case is worth $50,000 you may qualify for an advance of up to $5,000.
When a funding company underwrites a case they review the documents, usually a police report explaining liability, an overview of medical treatment, and the insurance limits that are available. Other factors that affect the value of your case can include wage loss claims and property damage to your vehicle.
The very reason for lawsuit loans is to level the playing field between financially strong insurance companies and plaintiffs under physical and financial strain. Lawsuit loans give plaintiffs the staying power to litigate the case properly – and that can take years in some instances.
Lawsuit loan repayment depends on how long it takes for a case to settle. By waiting for your case to develop, not only are you making sure the relevant documents are available, you are also minimizing the amount of repayment.
Tip 3 – Ask Your Attorney about Lawsuit Funding
Your attorney is used to dealing with personal injury cases just like yours, so they may have had a client in the past use legal funding. Ask them to recommend a funding company their clients used successfully in the past. If your attorney declines, then learn how to shop for a lawsuit loan on your own. There is plenty of information available and not as hard as it seems.
Also make sure your attorney knows you are taking an advance. Your attorney is going to have to sign an agreement with the funding company so make sure it’s not a surprise to them. In addition to legal advice your attorney can perhaps give advice here as well. Getting the best deal on a lawsuit loan is important – it ensures that there will be ample money at the end of the case to make you whole again – even after legal funding and expenses are repaid.
Tip 4 – Take a Small Settlement Loan if Possible
Consider taking as little money as possible from a lawsuit loan. Since legal funding is expensive you don’t want to overestimate the amount you’ll need. Obviously, the less you receive the less the repayment will be at the end of the case.
Remember, you want to make sure you do not have to repay more money than necessary. The ultimate repayment amount should NOT hinder settlement negotiations. If a reasonable settlement offer is received, it can be accepted because the liens on the file do not consume the entire proceeds.
Also, If you run out of money you can always go back and request an additional lawsuit cash advance. In some cases, you can borrow a specific amount of money every month to meet your monthly bills. Instead of thinking I need $12,000 to survive this year, consider taking $1,000 per month throughout the year.
Tip 5 – Settlement Funding Costs and Fees
As I’ve mentioned several times, lawsuit funding can be expensive. Competition has brought fees closer between companies, but it is still important to shop around for the best rates and fees. Lawsuit loan costs consist of the percentage as applied to the contract amount and processing and/or other fees that are also added to the amount the plaintiff receives. Read the contract carefully as lawsuit funding is an unregulated marketplace.
For example, if you use a lawsuit funding broker, their fee can be up to 15% of the amount received and will have a significant impact on the repayment amounts over time.
Lawsuit loans can serve as a lifeline to plaintiffs who are in dire need of cash to pay for immediate needs. Whether plaintiffs need immediate medical treatment or just have to keep a roof over their heads, lawsuit funding contracts can help keep litigants afloat. There are costs however, and the understanding of these will lead to better choices as to whether lawsuit funding should be obtained.
You may be interested in: What to Expect when Applying for a Lawsuit Loan