Although you may have already filed a personal injury suit, the court proceedings are typically slow. Before borrowing money from your lawsuit, learn when a lawsuit loan is worth it and when it might put you at risk.
What are lawsuit settlement loans?
A settlement advance is a cash advance option that gives plaintiff borrowers access to a portion of their estimated settlement (or jury verdict) amount before their case settles or resolves. They work under non-recourse funding contract agreements, which means they are free of risk to the borrower.
Lawsuit settlement loans are relatively easy to obtain when your case is strong, have a value of over $50,000, and your attorney collaborates with the lender. They are available for plaintiffs involved in personal injuries and commercial litigation, from small amounts to jumbo funds.
Sounds like a pretty sweet arrangement when it comes to borrowing money from your pending lawsuit settlement. Having the freedom to have the needed cash until your case resolves could be temporarily beneficial. But if you’re considering applying for a settlement loan, get to know the pros and cons first.
To aid in your search, here are some tips for finding the best lawsuit loan companies for your situation.
Pros and cons behind lawsuit loan transactions
Before taking out a cash advance on your pending lawsuit, consider some of the pros and cons.
Four lawsuit loan advantages
1. There is no risk to the plaintiff.
Risk-free loans do not require the usual collateral (like a house or a car). The only collateral a funder considers is your future settlement proceeds. Legal funding is non-recourse, so putting up an asset is not required as long as your claim is strong. The lawsuit lender can’t come after your assets if you don’t win your case.
2. No credit or job verification
Banks don’t give loans on settlements because they don’t see your future settlement as collateral, and for you to get approved for a bank loan, your credit has to be decent, and you have to show proof that you can make monthly payments on the loan. When you are unemployed and can’t afford to pay your medical bills, you still cannot default on their loan, or they’ll take everything you have to ensure you pay the debt. That is the difference between settlement lenders and banks. Funding companies do not check your credit score or employment status to approve you for a lawsuit loan as long as your case is strong enough to win.
3. High cash advance amounts.
Lawsuit loans come in all sorts of amounts, starting at $500 for a case worth $5,000 up to $2 million for a personal injury case with a value of $20 million. Litigation claimants can get funding starting in the vicinity of $500,000, all the way up to $20,000,000 or more. The typical pre-settlement funding company will release up to 20% of what the litigation is worth regarding corporate claims.
4. Fast application and approval time.
Since you can obtain lawsuit cash advances through a variety of funding firms, the approval takes 24-48 hours if the lender is well-capitalized. Others take a proximity of 3 to 7 business days.
Four lawsuit loan disadvantages
1. Lawsuit loan interest rates are higher than normal.
Because settlement loans are non-recourse, they’re perceived by legal financiers as extremely risky. Pre-settlement funding interest rates can go between 26% to 42% a year with reputable settlement loan companies and up to 200% with predatory lenders.
Do not expect a lawsuit loan interest rate to be like your traditional financial institution. Since a lawsuit funding advance is not considered to be an actual loan (in the conventional sense), lawsuit lenders do not provide real loans. On the contrary, they provide non-recourse financing. This means that in the scenario that you don’t win your dispute, you will be banned entirely from paying the advance. But if a bank lends you money, and you don’t pay it, they’ll come after you and drive you through bankruptcy for defaulting on the debt. This is why our rates are higher than theirs.
Some local government officials have tried to ban legal funding or make it an actual loan, resulting in litigation funding companies withdrawing from those states for the extra added risk on top of the already high risk. Ironically, these actions indirectly help insurance companies since not having money for your main expenses will force you to take the lowest amount possible from your settlement out of desperation.
So, no matter what restrictions these individuals try to impose on the legal funding industry, with their “consumer safeguards” excuse, you know someone is a perpetrator if they are on the insurance’s side to prohibit plaintiff funding robustly. These actions bring a massive disadvantage to injured plaintiffs in need and a huge advantage to insurance companies.
Many bar associations have suggested that legal funding is an ethically robust business that increases access to justice.
As a plaintiff, always ensure that the rate on the lawsuit loan doesn’t go above 42% per year and that you don’t take out more than 10% of your case’s value.
2. Be careful with an unreputable settlement lender
Although the rates and fees of your lawsuit advance can multiply the initial rates when they are compounding, you need to do your homework. The fees should always be transparent, and one way to know this is by looking at the funding contract’s yearly interest rate. Do not choose a settlement lender that provides high-interest rates (higher than 41% per year). Scrupulous companies offer those types of rates that may raise the chance of you ending up with a quarter of your monetary compensation or even losing your settlement money when it pays out.
3. Your attorney plays a key part in your qualification.
Attorneys cannot give advances on settlements, but lawsuit loan companies do. Most attorneys help their clients by looking for a top-rated lawsuit funding company to help them. However, less than 0.02% of lawyers in the United States deny their clients with solid, fundable, and meritable claims from getting pre-settlement loans. They think the pre-settlement funding rates are too high, ultimately settling their cases for much less yet charging 30% to 40% in attorney fees.
We all like to think of having the most extraordinary case in the world, but the reality is that winning a legal claim is not a guarantee. With this said, no bank will ever give you money for a future settlement because a future lawsuit award is not a guarantee to them.
Legal funding companies see your expected settlement (or award) as collateral and take a high risk by lending you plaintiff-risk-free money. Since settlement loans carry increased risks to companies, they automatically have higher rates than traditional loans but are much lower than payday or title loans.
Lawyers are aware that predatory lending exists in the litigation funding industry. However, although your legal representative has no obligation to sign a funding contract with higher rates than usual, your lawyer cannot deny you from getting a lawsuit loan from a company that provides competitive rates. Why? Because it is unethical not to help a client with a lawsuit loan company that offers fair rates. No one will fund your case if your attorney does not consent to the legal loan, especially after you have been approved for non-compounding low rates.
4. Your case has to be strong enough to win.
If the lawsuit loan funding company feels your case has merit, they will release you the amount you need to cover your expenses. But if your case is new, you most likely won’t get the cash you need.
Also, if your claim is recent, ethical pre-settlement funding companies won’t take your case or charge no more than 41% a year for the loan. But be careful with the ones that provide you with $500 if you only have soft tissue injuries; many of them will charge 200% interest a year.
Never sign a legal funding contract with higher rates than what you should actually pay.
When is a lawsuit loan a good idea?
Lawsuit loans are a great option if you need a quick cash advance from your potential compensation now to pay your medical bills or other day-to-day expenses.
With many lawsuit funding companies operating online, funds can be made available in a matter of one business day from the time your attorney provides the required information. Other good reasons to use lawsuit loans include paying for transportation to take kids to school or taking your dog to the veterinarian.
When to get a lawsuit loan?
Paying rent and other household bills. Using a lawsuit loan to save you from getting evicted or foreclosure could be an intelligent choice when borrowing against a credit card is no longer an option. If you find you have credit restraints, liquidity issues, or other obstacles to getting the money you need, then settlement funding may be the right choice.
Paying off medical bills. Out-of-pocket costs can stack up when you have been involved in a pedestrian accident or a slip and fall. If you visit the doctor’s office without insurance, you’ll only be getting more bills in the mail. A lawsuit loan can help pay off some of your medical expenses while you fight for the settlement you deserve.
Life-threatening emergencies. More expenses will appear when you are involved in a personal injury lawsuit. Others are so costly, especially for medical malpractice, or wrongful imprisonment victims. You can pay for significant life-threatening conditions with a loan from your lawsuit. Make sure you only borrow what you need.
When not to obtain a lawsuit loan?
Lawsuit loans are not a good idea for everyone that is involved in a personal injury lawsuit. After all, lawsuit loans are still a form of financing against your future compensation proceeds. If you feel that you have a habit of overspending for no reason, for instance, taking out a lawsuit loan for extra things to spend on makes no sense, as you’ll immediately start building up interest against your legal settlement payment.
Some funding companies will tell you that you can use your loan on just about anything, but think twice before borrowing a pending lawsuit loan for your settlement from a company that doesn’t care how you spend the funds. Using your lawsuit money intelligently is key to getting through your financial difficulties until your case settles or the lawsuit resolves. However, never use your plaintiff loan on short-term purchases.
Remember that you may be able to take out a loan on your litigation once or twice in your lifetime. Your potential settlement payment could be your only exit to save you from worse financial events in the future while helping you get maximum value for your case.
Lawsuit funding is unregulated, so follow these tips.
- Only borrow the money that you need from your lawsuit. Even the lowest lawsuit loan interest rates can be extremely high.
- Focus on what matters. Don’t focus only on your pre-settlement cash advance. Incorporate it into your main essential needs only. And focus on winning your lawsuit.
- Search for the right funder. See what kind of lawsuit loan rates companies offer. Check several funders, too, like Baker Street Funding or Fast Cash. They are the answer to landing a pre-settlement loan with a lower interest rate.
- Do your due diligence. Don’t end up losing your whole settlement because you didn’t do your due diligence. Some pre-settlement funding companies on top of the search are not what you think they are. Research who they are, dig deep into their past and find out if the owner has been involved in previous lawsuits or, even worse, involved in financial crimes. It’s all public record.
- Know what the contract says. One thing to be aware of in this process is rates. Because a settlement advance is an investment in your legal settlement outcome, the interest rate of return usually is relatively high. While we strive to provide our clients with the lowest and fairest rate possible, other companies are not client-focused. Understand the contract you are signing is crystal clear. Make sure your attorney explains the agreement to you.
- Talk to your lawyer. Your attorney is key to your settlement funding application. Make sure that your attorney is always present and up to date with your funding application. Your lawyer helps us figure out the details of your case and estimate its value. They will also let us know if any other outstanding liens may affect the amount we can fund. After speaking with one of our representatives, we ask that you contact your attorney to let them know we will be reaching out. Fostering a relationship early in the application process always helps us reach a funding decision quickly.
- Be aware of red flags. Does the company you contact demand you only speak over text message? Do they say they are going to call your attorney and delay in doing so? Do they give you a general pre-selected answer to every question you ask? If you don’t feel comfortable, walk away. You can always contact another legal funding company, no matter where you are in your current application process. Even if there is a pending contract, you can still walk away.
A settlement advance could be a life-saving financial instrument when you have no other option and face dire economic consequences like foreclosure and eviction.
Before taking out a lawsuit loan:
- Know how much you need and only use the funds for emergency expenses.
- Weigh the pros and cons of taking out a lawsuit loan.
- Make sure you explore all your financial options, including borrowing money from friends first.
- Learn about your alternatives, such as a home equity loan, ask people you trust for some money until your case settles, or try to get a credit card balance transfer.
- Be sure to research and be on the lookout for what lawsuit loan companies do and don’t reveal.
- Ask several funders what their rates are to compare interest rates and loan terms. Please don’t take their word for it, but ensure that the contract matches what they tell you.
- It is very important to read the fine print, including fees and compounding rates.
- Before accepting a lawsuit loan, use a lawsuit loan calculator to determine whether or not you should take out the advance.
Once you have what you need, decide if the benefits of a lawsuit loan outweigh the drawbacks. At the end of the day, you want to work with a lender that makes you feel as comfortable as possible for a fair price.
Need to request a settlement advance?
Lawsuit lending is extremely risky to pre-settlement loan companies, and there’s no one-size-fits-all scenario when it comes to pre-settlement funding approvals.
Baker Street Funding only requires that you have an attorney and a strong case. We are so confident in our legal funding team and our contracts’ structure that we encourage our clients to shop around when they are insecure. Most lawsuit loan companies would not dare direct their clients to competitors when they can’t fund them, but we do.
While it may be frustrating for your lawyer to field calls from multiple lawsuit funding companies, we are optimistic that our contracts and our customer service trump anyone else in the industry.
We do not run credit or employment checks as other companies do. The strength of your litigation solely dictates our amounts. This means that if you have been denied loans before and need immediate cash now, those denials will not affect your ability to receive a settlement funding advance from us.
While all our contracts are custom-tailored to each plaintiff’s situation, you typically will have to pay back the original amount advanced to you plus interest rates at the time of settlement proceeds. So there is no risk to you.
Your lawyer cannot give you an advance on your settlement, but you can still borrow money from your lawsuit judgment or settlement from Baker Street Funding. You have the option to take a custom rolling contract that gives you access to a fixed amount of cash each month, or you can re-apply for a second lawsuit loan if you run out of money. This way, you can rest assured that you will meet your financial obligations.
Ready to get funding? The application is easy and fast. See the sunrise with lawsuit funding today.