The Truth About Pre-Settlement Lawsuit Loans
A serious accident can be financially devastating to a family. Even if they know they will likely recoup their money through a lawsuit, what do they do in the meantime? Some turn to pre-settlement lawsuit loans, but before you sign on the dotted line, make sure you know exactly what you’ll be giving up and what terms you are accepting.
Are you looking for more personalized advice regarding your personal injury claim? Let Reeves & Mestayer guide you through this process and help you fight for fair compensation. Call us at 228-374-5151 to schedule a consultation now.
How Pre-Settlement Funding Works
Pre-settlement lawsuit loans exist because lending companies know that certain cases are likely to end in a payout. They also know that many people are unable to make ends meet while they wait for their claim to be settled. Institutions capitalize on this by offering no-risk loans at very high-interest rates. Yes, they are technically “risk-free” — if your claim does not yield a settlement or jury award, you do not have to pay the loan back.
When the claim is settled, the lender is paid back the amount of the loan, plus interest and fees.
The Downside of Litigation Loans
On its face, the idea of a pre-settlement lawsuit loan is promising. You get the money you need, you take no risk, and the company gets back what they pay you when your claim settles. However, the drawbacks of these loans largely fall on clients—not the companies providing the loans.
To start, the interest rates on pre-settlement loans tend to be extraordinarily high. They are more similar to a payday loan than they are to a credit card. They claim that this is because they are absorbing the risk of your loan. If you don’t get a settlement, they are left with nothing. The interest rates they collect on successful loans balance out the ones that they lose on, or so they say.
In truth, though, there are very few litigation loans that do not result in a settlement or court award. This is because the companies providing these loans only take cases where a payout is extremely likely – nearly guaranteed in fact. They aren’t going to hedge their bets on a massive case that could go either way. With these types of loans, funding companies are looking to bet on as close as possible to a sure thing.
What If a Loan is Your Only Option?
Maybe you know that a pre-settlement lawsuit loan isn’t going to be great for your finances long-term, but you’re not sure what else to do. Your landlord won’t wait around for a settlement, and you don’t want to tank your credit by leaving bills unpaid while you wait.
It’s recommended that you explore every other possible option before turning to pre-settlement funding. If you have credit cards, the interest rates on those are likely far less than you’d pay on a pre-settlement loan. If you can borrow money from friends or loved ones, that is another avenue to consider. Other options include a bank-funded personal loan, short-term disability insurance through your work, or a home equity line of credit.
If there is truly no way around a pre-settlement lawsuit loan, make sure you compare your options. Perhaps you’ve been approached by a lender already. Don’t assume that they’ll give you the best deal. Look into other lenders in your area and bring their terms and conditions to your attorney.
Your attorney will ensure that everything you’re signing is legal and advise you on what is in your best interests. Additionally, your attorney usually has to speak with the lender about the strength of your case and the likelihood that you will prevail. In doing so, they will want to ensure that you are not giving up more than you should in order to get the funds you need.
Find Out How Reeves & Mestayer Can Help You with Your Claim
The team at Reeves & Mestayer knows that an accident can leave you overwhelmed and unsure of what to do next. We’re here to make this time as stress-free as possible for you. Whether your injuries are the result of a vehicle collision, a fall, a dog bite, or another type of accident, it’s time to talk to an attorney about your legal options.
Let’s set aside some time to talk more about your case and what you should do next. Schedule a consultation by contacting us online or calling us at 228-374-5151.
