Dealing with the aftermath of a car accident can be difficult. Even with good insurance, many injured people may not be able to afford the co-pays on their medical treatment or the repair costs for their vehicle. While these costs may eventually be reimbursed through an auto insurance settlement or lawsuit, it can be hard for families who are struggling financially to wait for these payments.
As a result, a new class of predatory lenders is attempting to take advantage of injured people waiting to receive compensation after an accident. Known as advance lawsuit settlement funding or simply lawsuit loans, multiple companies will contact accident victims with an offer of an advance on an anticipated settlement or jury verdict.
A lawsuit loan is available when a person has a pending injury settlement or trial. The lender will provide an advance to the injured person which is usually less than 20% of the anticipated amount—for example, a loan of $5,000 may be 10% of an expected $50,000 settlement.
These loans typically carry an exorbitant annual interest rate of 50-100% over several years. Often, people who take out these loans end up paying back much more than the original cost of the loan. To that end, these loans are similar to payday loans or online personal loans which will approve nearly anyone. Even credit card advances have lower interest rates than lawsuit loans.
Most lawsuit loans will only need to be repaid if there is a settlement or successful jury verdict. If the injured person loses the case, then the loan will not need to be repaid. These types of loans are also known as no-recourse financing, which means that the lender will not be able to pursue the borrower for any additional money if the case settles for less than expected. For these reasons, applying for a lawsuit loan means that your attorney will have to complete a significant amount of paperwork showing that the case has a strong possibility of winning.
Many people live paycheck-to-paycheck, and do not have the available savings to cover their bills in the case of an emergency. When an injury or an accident causes a family’s breadwinner to miss work, the household bills will still keep coming. Without sufficient savings, these people may find themselves unable to even keep the lights on or the mortgage paid.
An auto insurance settlement or lawsuit will eventually reimburse injured people for these types of expenses if the claim is successful. However, it can take months or even years for a settlement or lawsuit to resolve, and a family may find itself in a desperate situation. When the family is unable to borrow money from others or extend their credit, lawsuit loans may be the only option left to cover the bills.
Whenever possible, an injured person should avoid taking out a lawsuit loan. The interest rate on these loans is much higher than almost any other type of loan or cash advance, and should only be used as a last resort. Borrowing money from family or friends, taking out a second mortgage, or using credit cards to cover the bills are all cheaper options than lawsuit loans.
Most lawsuit loan companies charge interest rates of 2-4%, compounded monthly. This means that if a person takes a settlement advance of $1,000 at 4% interest compounded monthly, the borrower will owe at least $1,601.03 after one year, plus any additional application fees or other fees. If the settlement takes two years, the borrower will owe $2,563.50. The more money that is advanced, the more that the eventual settlement or verdict will be affected. Many people who take out large advance lawsuit settlement loans will never end up seeing any money from their case at all.
At Fighting for People Injury Law, we understand that it can be difficult to make ends meet while recovering from an accident or injury. That’s why our attorneys work on a contingent fee basis, which means that you don’t pay us unless you win your case. We know that you need money to recover from your injuries, and we will work hard to get you the compensation you deserve.
For a free consultation about your rights and legal options after an accident, call 215-396-9660 today.
