Lawsuit loans can be a helpful way to manage financial difficulties during a personal injury lawsuit. They provide access to a portion of your potential settlement, but you only repay the loan if you win the case. But like all financial services, these loans also have some disadvantages. For example, they come with higher interest rates than standard loans, meaning less of your settlement will go to you after you win.

So, before taking the plunge, be sure to weigh the pros and cons to see if it’s this type of legal funding is the right option for you.

Advantages of Lawsuit Loans

Lawsuit loans, also known as pre-settlement legal funding, or lawsuit cash advances, have many advantages over other types of financing. Here are a few benefits that this funding provides in comparison to other choices.

Non-Recourse Funding

Traditional loans are often “recourse” meaning that lenders can go after borrowers for the full amount if they stop making payments. Lawsuit loans, on the other hand, are non-recourse, which means they don’t need to be paid back unless you win your case and get money from the settlement. Other features include:

No Credit Checks. Your credit history doesn’t affect your eligibility to borrow money from your lawsuit. Win or lose, there are no negative impacts on your credit report.
No Income Verification. Pre-settlement loans are accessible regardless of your income level.
No Monthly Payments. No monthly payments, or payments at all until you receive your settlement payout.
No Upfront Fees. There are no out-of-pocket costs as all fees and interest are deducted from your settlement money.

Fast Funding Process

Unlike traditional loans that can take weeks or even months for approval, the settlement loan underwriting evaluation takes 24-48 hours. Some lenders, like Baker Street Funding, have funds available the same day of approval. Here’s a quick breakdown of the process:

Application. You apply for funds through a funding company, like Baker Street Funding.
Evaluation. Underwriters then evaluate the merits and value of your case, in consultation with your attorney.
Approval. If you get approved, you’ll receive a cash advance, which is a percentage of what you expect from your settlement (or jury verdict).

Higher Approval Amounts

Because legal funding companies evaluate their decisions based on the case’s merits, it results in higher approval rates compared to alternative financing options. You can receive a loan ranging from $1,500 to $2 million, with approvals reaching up to 10%-20% of your claim’s current net value.

You can also choose between a lump-sum payment or monthly recurring advances with some lenders.

Easy Eligibility For Most Lawsuits

Pre-settlement loans are widely available for personal injury cases, employment claims, and civil rights litigation. Here are some of the cases that are gladly accepted:

Wrongful death
Medical malpractice
Car accidents
Sexual abuse
Mass tort
Nursing home negligence
Wrongful imprisonment
Police brutality
Work-related accidents

Flexibility in Spending

Some borrowers use legal funding for medical bills, living expenses, rent or mortgage payments. Others prefer to maintain their expenditures private. No matter what you might need the money for, lawsuit funding companies give you the flexibility to use the advance as you see fit, without the hassle of traditional bank loans scrutinizing your spending habits.

Relief from Financial Stress

Did you know that a NHIS Study found that financial distress is closely linked to mental health issues such as anxiety and depression? Lawsuit settlement loans offer financial peace of mind, creating a better space for healing and recovery, which enables you to better concentrate on your case and make sound decisions.

Boost in Settlement Negotiations

When settlement negotiations are in progress, the process is slow, and the risk of settling too soon for too little is real when money troubles arise. A lawsuit loan gives you the financial backing to negotiate from a position of strength and wait for a better settlement. Sure, the loan isn’t cheap, but it lets you keep your eyes on winning.

Medical Procedures Covered

If you need surgery as a result of your accident and you’re not covered or don’t have insurance, lawsuit funding for medical liens alternative can pay the healthcare provider directly. This usually costs less than an actual medical lien, where medical expenses can go through the roof after your settlement.

Better Terms than Payday and Title Loans

Payday loans can charge exorbitant fees, trapping borrowers in a cycle of debt, while title loans risk losing your vehicle if you can’t repay. In contrast, lawsuit loans often have lower rates. Plus, if your provider has a capped rate for 2 or 3 years, you’ll find that all charges pause at that cap. This makes pre-settlement loans a much safer and better choice.

No Penalty Agreement Withdrawal

Some lawsuit loan companies also offer the right to withdraw from the contract within 5 days of receiving your loan funds. This lets you change your mind and give the money back without any penalties if you find a better financing option or realize the loan terms aren’t quite right for you.

Disadvantages of Lawsuit Loans

While lawsuit loans are a great choice in many situations, they aren’t the best option for everyone. Here’s why:

Higher Interest Rates and Fees Than Average Loans

One of the major cons of lawsuit loans is the higher interest rates and fees compared to average bank loans. This is due to the fact that the lawsuit funding company takes on a greater amount of risk with cases that don’t result in a favorable outcome.

As an example, the effectiveannual percentage rate (APR) on pre-settlement loans usually falls between 36% and 60%. In comparison, conventional personal loans tend to have APR’s ranging from 5% to 36%, depending on how good your credit is and what’s happening in the market.

Lawsuit Loans are Not Regulated

Lawsuit loans operate in a largely unregulated industry. As a result, the terms and conditions vary between lending companies. While uncommon, certain lenders may have exorbitant fees that might make the repayment from your settlement much higher.

Also, if your state government regulation mandates the disclosure of your settlement loan, insurance companies may perceive you as either desperate or determined to receive appropriate compensation. If your circumstances are less than perfect, this may work to your disadvantage.

Not Available in Some States

In states with strict cost lawsuit loan regulations (like those for banks), companies have to limit what they can charge. This makes it difficult for even reputable funding companies to manage the risks of funding lawsuits, which is why you won’t find these loans available in those states.

Reduced Settlement Amount

Another downside to lawsuit loans is that it’ll reduce the amount of money you ultimately receive from your settlement, as you are borrowing against it. Additionally, if your settlement recovery turns out to be lower than expected, the loan payment might leave you with very little settlement money.

Not Available Without an Attorney

Because your lawyer helps verify your case, and repays the lender from your settlement or verdict, your attorney must be willing to assist, or your loan application will be denied.

Strict Case Merit Requirements

Smaller cases or those with weaker evidence may not qualify for legal funding, leaving some without this financial option. Make sure you pay close attention to what your lender tells you so you don’t waste time.

That being said, most pre-settlement funding companies won’t fund the following:

Soft-tissue injuries that don’t require any future injections or surgeries.
Most class-action lawsuits.
Discrimination lawsuits with no settlement offers.
Police brutality with no camera footage.
Claims involving children or mentally disabled persons.
Dental malpractice unless there is 100% concrete evidence.
Worker’s compensation claims in most states.
Home insurance claims.
ADA Claims.

Stringent Repayment Terms

Once your attorney receives your settlement proceeds, lawsuit loan companies expect to be repaid right away. If you don’t comply with the ‘Settlement Funding Agreement’ and fail to settle the advance post-settlement, you could face wage garnishment, property repossession, and potential legal action from the pre-settlement funding company.

Previous Felonies Could Disqualify You

Many funding firms require a criminal background check. Although it may seem invasive, lenders must consider the possibility of fraudulent activity to prevent illegal financial practices. Having a criminal record, especially for financial crimes, can decrease your chances of receiving funding for your legal case.

Not Available for Serial Plaintiffs

A serial litigant or professional plaintiff is someone who takes advantage of the legal system for personal gain or is overly argumentative. If you have a history of filing many lawsuits, you might be seen as a litigious plaintiff. Even if your current case has merit, pre-settlement funding companies might be hesitant to work with you due to the dangers of habitual litigation and to prevent abuses in the legal system.

There’s a Potential for Over-Borrowing

Receiving a sudden influx of cash can be a double-edged sword. If you’re not careful, you could potentially over-borrow money and be compelled to settle your case prematurely in order to avoid the larger payment on your settlement.

Should I Get a Lawsuit Loan?

When contemplating the possibility of a pre-settlement cash advance, a lawsuit loan might make sense if:

You’re currently unemployed or have insufficient income, and have exhausted all other means of financial support for yourself and your family.
You are experiencing financial hardship and are at risk of being evicted, having your home foreclosed, receiving notices of electricity shut-off, experiencing a shortage of food, or simply need to cover living expenses.
You are getting lowballed and are short on funds to afford the wait for a fair and final settlement.
Your local business is on the brink of collapse and you need funds to sustain it until you recover fully.
You owe child or spousal support and are facing penalties or other legal consequences.
Your pet needs urgent vet care, but you can’t afford it.
You or a loved one has a life-threatening condition.

You might like: When Is Pre-Settlement Funding A Good Idea?

When to Not Get a Lawsuit Loan

A lawsuit loan might place you at a financial disadvantage if you use it for opening a new business, buying stocks, gambling or you tend to overspend or make large purchases. It can also be an unwise decision if the legal funding company is:

Delaying contacting your lawyer.
Giving you one rate over the phone, and another on contract.
Charging you upfront fees.
Intimidating you into signing a pre-settlement funding agreement.
Charging you over 42% in annual interest with no caps.

The Takeaway

Choosing a lawsuit loan isn’t a decision to take lightly. It’s a strong way to support your legal fight without worrying about credit checks or repayment unless you win. One of the biggest perks is financial relief. But they also have higher interest rates, which means you’ll take home less from your settlement. Still, there’s a real risk of taking a lowball offer if you’re strapped for cash. Having extra cash can help you fight for the settlement you deserve, even if the loan costs more overall.

Remember—lawsuits might only happen once or twice in your life. Your settlement could be your ticket to a financially secure future. So, take some time to pros and cons before making a commitment that might make or break your financial situation in the years to come. At the end of the day, it’s about making sure your financial decisions today set you up for success tomorrow.

Looking for a partner that puts your needs first? Baker Street Funding does just that with favorable terms. With rates starting at 2.95% simple interest per month, our non-compounding rates and interest cap mean you’ll have one less worry on your plate.

If you’re ready to get pre-settlement funding, the application process is easy and fast. Get the help you need with a lawsuit cash advance from Baker Street Funding today. No upfront costs. No credit checks. No-win, no-pay guarantee.