If you are skeptical about taking a case advance against a pending lawsuit, you are not alone. The fact that a legal funding company is willing to give you a cash advance without regard to your credit score, assets you own or employment history seems too good to be true. When you add to it that the money comes with no restrictions on how you use it and does not have to be repaid until your lawsuit is settled or ends with a judgment in your favor, you must be wondering about the safety of lawsuit loans.
Settlement loans, which is another name for cash advances given based on the potential value of lawsuit settlements, are safe provided you know how they work and research the costs and other terms associated with them before agreeing to accept the money. To help you decide whether taking an advance against the settlement of your personal injury case or another type of pending lawsuit is right for you, here are essential things you need to know about litigation funding.
What is a cash advance against a pending lawsuit?
As the victim of medical malpractice or other types of negligence, you have the right to receive compensation for your injuries, but personal injury litigation takes time before there is a settlement or judgment in your favor. The same thing is true for other types of lawsuits, including wrongful death, wrongful termination, and other types of cases that seek to recover monetary damages.
If you are out of work while your lawsuit is pending, the following may be a financial burden:
- Medical bills
- Car payments
- Mortgage payments
- Rent
- Other living expenses
A lawsuit loan that lets you get a portion of the potential value of your settlement right away could offer the financial relief that you desperately need by making it possible to pay your bills.
A lawsuit funding company evaluates your case to determine the likelihood that you will win and the potential settlement or judgment. If your case is approved, you receive a portion of the anticipated settlement proceeds from which it will eventually be repaid along with interest and fees charged by the settlement funding company.
Is it legal to get a cash advance or loan on a pending lawsuit?
Getting a cash advance against a pending settlement is legal throughout the United States. Congress has not enacted any regulations making it illegal for lawsuit loan companies to operate. The handful of states that have legislation specifically pertaining to pre-settlement funding primarily focus on placing caps on what companies may charge in interest rates and fees.
Some states, such as Ohio, require that a loan company must disclose in writing to a consumer all fees and interest charges along with the total amount to be repaid by a person getting a cash advance. Ohio also includes a requirement that applicants may change their minds and cancel the transaction without obligation or penalty within five days from the date of receipt of the advance.
Can my attorney give me an advance?
In most states, attorneys cannot give money to a client to pay for living expenses in anticipation of a favorable settlement of a lawsuit. It is a violation of professional conduct rules for a lawyer to subsidize a pending lawsuit by giving money to a client for living expenses. Lawyers may, however, advance court fees and expenses related to the lawsuit itself.
Does my attorney need to approve my loan?
Your lawyer does not have to give approval for you to get a pending lawsuit loan, but lawsuit lenders may have difficulty approving your case for a cash advance without the cooperation of your lawyer. As was mentioned previously, the primary focus of the underwriting process to determine whether a plaintiff gets a lawsuit loan is the strength and value of the case.
The attorney handling your personal injury lawsuit has the information and documents a pre-settlement funding company needs in order to evaluate your lawsuit and decide whether to give you a cash advance. Even if it eventually obtains what it needs to evaluate your case, a lawsuit lender may be reluctant to approve the advance for fear that the lawyer will not keep it informed of the progress of the lawsuit.
How much does a lawsuit loan cost?
The cost of your lawsuit loan depends on the interest rate and other fees charged by the lawsuit loan company that you ultimately select. It is important to keep in mind that the cash advance is a non-recourse transaction, which means that the lender cannot go after you for the money should you lose the lawsuit or if the settlement or judgment is not enough to repay the entire amount that was advanced to you.
Companies charge high interest rates because of the significant risk of not getting repaid. If the case is lost or settles for less than the lawsuit funding company anticipated, the company takes the loss.
When shopping for a legal funding company, find out the interest rate and whether it is simple or compound interest. Simple interest means you pay it only on the amount of the cash advance. Compound interest is computed based on the cash advance and on the interest that has been earned on it.
Fees charged by legal funding companies may vary. Some companies may only charge interest on the cash advance, but other companies may impose additional fees, including fees for the following:
- Application
- Processing
- Funding
- Underwriting
- Origination
- Review
- Delivery
Fees add to the cost of the money that you receive, but a somewhat hidden cost is the interest charged on them. Remember, fees that are not paid upfront get repaid when you receive a favorable settlement or judgment, which means the company is charging interest on the fees until the money you accepted is repaid.
Is it worth it to get a cash advance on my lawsuit?
Your lawyer may be able to help you decide whether a lawsuit cash advance is right for you, but ultimately, the decision is yours to make. Consider the following factors when making your decision:
- A cash advance gives you money to pay living expenses.
- You can qualify even with bad credit.
- You get the money right away.
- Lawsuit funding is expensive.
- Delays in settling the lawsuit adds significant interest expense to the repayment.
- Lack of government oversight means you must shop with care for a reputable company.
If you have an alternative source of funds instead of a lawsuit loan, you should explore it first. Alternatives to getting money from a settlement funding company may include:
- Friends or relatives.
- Personal loan from a bank.
- Credit card.
Getting money through any of these alternative sources obligates you to eventually repay it, so weigh the pros and cons of a cash advance as well as alternatives to decide on the best option for you.
How can I get pre-settlement funding?
The process of pre-settlement funding is relatively simple and generally involves the following three steps after you pick a settlement funding company
- Complete an application, which will usually be accomplished online.
- The company talks to your attorney and gets information about the lawsuit.
- The company approves the lawsuit for litigation funding.
- Payment of the funds to you.
There are many companies offering litigation funding, but it can be a challenge to find one that is reputable and offers the best rates and terms. The best way to find a lawsuit loan company that you feel comfortable working with is by shopping around.
Compare Lawsuit Loans provides unbiased reviews of dozens of the top lawsuit settlement loan companies.
Your lawyer may also have experience with litigation funding companies, but we find that attorneys often prefer funding companies for the wrong reasons. Instead of focusing on low rates, lawyers frequently recommend companies that they have a personal relationship with or companies that request minimal documentation.
Another place to begin your search is with the American Legal Finance Association, which is a trade organization made up of members of the legal funding industry.
What to look for when you shop around?
Contact several lawsuit loan companies in your search for a reputable one offering the best terms and rates. Narrow your search by evaluating their responses to the following:
- Interest rates: Determine whether they charge simple or compound interest and the rate that you can expect to pay. Compound interest generally increases the cost of the money more than simple interest.
- Other fees: Ask each company to give you a list of all fees charged in addition to interest.
- Terms of repayment: Confirm that repayment of the money advanced to you will come only from the settlement proceeds of your lawsuit, and you will not be responsible if you lose or the lawsuit settlement or judgment is not enough to pay it in full.
Rule out any company that seems reluctant to provide information about their services or associated fees and interest. To learn more about comparing lawsuit loan companies, check out our guide.
Conclusion
Before making any decision about getting money through pre-settlement funding always compare rates and terms on an apples-to-apples basis. That means getting quotes from several lenders and working through the numbers with your attorney or a financial advisor. You can also use our lawsuit loan calculator to compare various quotes.
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