Lawsuit Loans And How They Work
A lawsuit loan is essentially a cash advance made against an upcoming lawsuit settlement or judgment award. Lawsuit loans provide a method for individuals to take care of their basic needs and cover medical costs while they await a resolution to their case. Many plaintiffs end up settling for less than they deserve too quickly because the funds are needed faster than they would have to wait for the settlement of the lawsuit.
Lawsuit loans can provide the cash needed to take care of financial obligations until the case is resolved. Typically, the repayment is not required while the lawsuit is still pending; rather, the loan is repaid from the proceeds of the judgment or settlement. Additionally, you will not have to repay the loan if you lose the case.
Lawsuit loan companies mainly target individuals involved in personal injury suits such as slip and fall cases, medical malpractice and traffic accidents. Additionally, some lenders grant loans to heirs awaiting settlement of a deceased individual’s estate or to individuals in civil rights or employment discrimination suits.
This sort of funding is also referred to as lawsuit funding, lawsuit cash advance, litigation financing, pre-settlement funding and settlement funding. Regardless of what it is called, being able to receive a cash advance against an unresolved settlement has assisted thousands of individuals in covering living expense while the litigation is in process.
Reasons Individuals Access Lawsuit Loans
A recent survey has found that 59 percent of Americans are just one income payment away from becoming homeless. Essentially, a number of individuals are already finding it quite challenging to make ends meet and as such, involvement in an accident could swiftly put the average individual in dire need of financial assistance.
When an individual sustains injuries in an accident that resulted from the negligence of another party, he or she could lose their capacity to work, whether permanently or temporarily. A family that was hardly making it could be quickly pushed over the financial brink into a continuous cycle of collection calls, late notices and eviction notifications. To avoid the added distresses, many individuals decide to access a lawsuit loan. Once a lawsuit is filed by the plaintiff, he or she can apply to a lending company to get a loan.
Below is detailed information on lawsuit loans and how they work:
Lawsuit Loans and How They Work
Typically, lawsuit loans are funded by private investors, hedge fund or banks that are prepared to provide loans to plaintiffs with the intent to get a substantial return on their investment. Lawsuit loan critics have highlighted that the legal standards by which other categories of lenders are bound do not apply to this form of lending, since in most states lawsuit loans is mostly unregulated.
After a personal injury lawsuit is filed, you would approach a lawsuit funding company to apply for the loan. The case will be evaluated by the company to determine the amount of compensation you could potentially receive if a settlement is reached. After which, based on the strength of the case, the lending company will offer a sum of money and you would have to sign a written agreement to repay the loan, with interest, along with a ‘funding fee’ after the matter has been settled.
Repaying the Loan
The loan is repaid from the settlement or the judgment funds once other expenses are taken care of. When a judgement has been obtained in court or you have reached a settlement with the defendant, there are certain expenses that will be paid off the top. Included among these expenses are:
• Attorneys’ Fees
In personal injury cases, the attorneys’ fees is typically between one-third and one-half of the compensation you are awarded.
• Litigation Expenses
These expenses could include process court costs, copy costs and server fees.
These cover services you received from hospitals, doctors or other medical providers.
One of the major benefits of a lawsuit loan for the borrower is that if he or she loses the case, there is no obligation for the loan to be repaid. This is a risk undertaken by the lender and it is among the reasons the expense surrounding a lawsuit loan is greater than other categories of loans. Similarly, if the borrower settles for less than the amount expected, he or she will not have to repay more than the settlement amount.
Advantages of Lawsuit Loans
There are a number of benefits to accessing pre-settlement funding, particularly if you are an individual who is in a financial rut that resulted from an accident. Some of the biggest advantages are keeping a roof over your head while recovering from an accident, being able to put food on the table and having functioning utilities. However, the advantages go far beyond basic survival needs.
It is the practice of many insurance companies to pressure the victims injured in accidents into settling for an unreasonable amount of money. This is because they are aware that the victim is in an unfavorable situation and is in search of an immediate solution. The settlement process might be dragged out by the insurance company, hoping that the plaintiff will cave in from sheer financial desperation. Furthermore, personal injury lawyers could also feel pressured into covering the expenses of their clients throughout the claims process; this could be an enormous expense.
Among the advantages of lawsuit loans that is most appreciated by plaintiffs is the previously-mentioned fact that they will not be required to pay bank the loans should the case fail to settle or the court failed to grant a compensation award. Of course, this is only an advantage if you are confident that the type of funding you are accessing does not require you to repay. It is vital for every individual involved in this type of situation to understand clearly the terms of the funding before any agreement is signed.
Shortcomings of Lawsuit Loans
The cost is the primary drawback of lawsuit loans. It is a fact that a lawyer has the capacity to get a much bigger settlement if a plaintiff has enough money to last throughout the negotiations. However, this is not a reality for many accident victims; therefore, many have to deal with the cost associated with lawsuit loans.
This is a drawback only if you are not knowledgeable about the interest rate and what the amount could look like as it relates to the estimated settlement. Additionally, this could become a disadvantage if a larger lawsuit loan than necessary is taken. However, if only what is required is taken and you are rational about what the settlement will look like after the interest has been paid, lawsuit loans can provide tremendous assistance during a difficult period.
Another drawback of lawsuit loans is that you might not qualify, particularly if you will not be required to pay back the lender if your case is not successful. These lenders are undertaking a huge risk and as such, qualifying for a lawsuit loan means your case must have a high likelihood to reach a favorable conclusion for the accident victim.
This type of loan could be the difference between justice being served and additional victimization by insurance providers that put profits ahead of human lives. Additionally, they could send you into a panic and leave you feeling angry if you do not do their homework and comprehend what you are getting into before signing any agreement.
When you are seeking a lender, whether for a client or for yourself, ensure that you go for a provider who will be completely transparent all throughout the process. If the provider is not willing to work with you on an individual level to ensure you comprehend the terms of the loan clearly, you should move on to another lender.