If you are pursuing a personal injury case, many times, you may have some financial difficulties. Excessive medical bills, a lack of health insurance, and the inability to work could factor into an overall crisis as you await your settlement or damages. Court cases can take a long time to be resolved. But even if your case is settled out of court – as most personal injury cases are – the process can still take a long time, even if the fault is obvious. this is especially true if you are expecting a large settlement. While you are waiting for a resolution and payment, bills and other financial obligations are likely to come due. To help make ends meet, you might consider a pre-settlement loan – which may also be known as consumer legal funding, litigation financing, lawsuit loans, settlement loans, pre-settlement advances, and pre-settlement funding.
But is it a good idea to seek such financing?
What Is a Pre-Settlement Loan?
Using the word loan is a bit misleading, as these transactions aren’t technically loans. They are cash advances based on how much your personal injury case is worth. In many cases, you don’t have to repay the money unless you successfully obtain a financial recovery in your case.
The amount that you can acquire with a pre-settlement loan typically equals about 10-15% of your estimated settlement value. That number, however, will depend on the facts of your case, the terms of the advance, and the loan company you are dealing with. When deciding how much to advance to a plaintiff, a pre-settlement loan company will consider:
- How much insurance coverage the defendant has in place
- How much can the plaintiff potentially recover
- The company’s confidence in the defendant’s level of liability
How Much Does a Pre-Settlement Loan Cost? It is essential for you to understand the terms of the advance, as you can expect to pay between 20% and 60% in interest, compounded annually. This could be a hefty price, especially if your case takes several years to resolve.
If You Can’t Pay Back Your Loan
Two potential scenarios may arise that could cause you to be unable to pay back your pre-settlement loan.
- You recover nothing from the defendant.
- You are awarded damages, but not enough to repay the advance, interest, and fees.
In either case, most of the time, the pre-settlement company will be forced to take the loss. Some companies might require you to pay back the advance or repay them regardless of the outcome, but these companies are in the minority. Check out terms and do not do business with those who will require you to repay them regardless of your outcome.
Are Pre-Settlement Loans Advisable?
A pre-settlement loan is a possible option if you require cash immediately and have no other way to get it. For many plaintiffs, however, more affordable sources of funding are likely available – including a personal loan from a bank, a home equity line of credit or even credit cards. While interest rates and cash advances are expensive, they are generally not nearly as costly as a pre-settlement loan. But some people do not have the credit to avail themselves of these alternatives.
After paying your attorney and repaying an advance, there may be little left over – even in a large settlement. It is important to speak to your attorney, investigate all your options, and cut as many daily expenses as you can before entering into an agreement for a pre-settlement loan. Most experts agree they should be utilized only in the most extreme of circumstances.
Probinsky & Cole are personal injury attorneys with offices in Sarasota, Brandon, and Orlando.
