Personal Injury Settlement Loans – Just the Facts
Learn the Facts of Personal Injury Settlement Loans
Personal injury settlement loans are liquidity tools for accident victims who need immediate money during the litigation process. Also known as lawsuit funding or lawsuit loans, personal injury settlement loans are advances on the future proceeds of a case. These monetary advances are made prior to settlement.
This page will discuss the need for lawsuit funding, why personal injury settlement loans are the most common and some criticisms of the lawsuit loan business in general.
The Need for Personal Injury Settlement Loans
Lawsuit “lenders” offer personal injury settlement loans to plaintiffs who need money to pay expenses such as rent, utilities, car payments, medical treatment, etc. These financial transactions exist because many accident victims can no longer physically perform their jobs. They often find themselves unable to keep up with expenses while they wait for the court system to make them whole again.
When an injured plaintiff files suit, they realize the defendant isn’t just the person or entity that caused them harm. They soon learn the opponent in a financially strong insurance company, including their team of defense lawyers. Cases can drag on for years. Unable to endure the financial strain, many plaintiffs accept low settlement offers simply to relieve the pressure.
How Personal Injury Settlement Loans Work
Personal injury settlement loans respond to this problem and afford immediate cash to litigants prior to settlement. The entire settlement loan process can be broken down as follows:
- A plaintiff or his/her attorney contacts a lawsuit funding company.
- The case basics are discussed on the phone and call is screened to ensure that an advance is possible.
- At this time, the plaintiff usually asks questions about rates and/or fees, the repayment amount, etc.
- Once comfortable, the plaintiff applies for funding over the phone. The application requires their name and contact information as well as the contact information for his attorney.
- Personal injury settlement loan company requests relevant paperwork from attorney’s office via fax or email or both.
- Once the paperwork is received, it is reviewed. At this point questions may be presented to the attorney as part of the underwriting process.
- If all goes well, the company approves the applicant for a “lawsuit loan”.
- A contract is drafted and forwarded to applicant and his/her attorney.
- Client signs agreement in front of a notary public and returns the documents.
- Attorney signs the attorney acknowledgement indicating he will repay the advance out of the settlement proceeds, if any.
- The money is sent via overnight delivery or bank transfer.
- At this point, the transaction is complete.
- When the case is resolved and successful recovery made, client’s attorney repays the personal injury lawsuit loan out of the proceeds.
Personal Injury Settlement Loan Alternatives
Personal injury plaintiffs seek settlement loans when all other alternatives are unavailable. Most often, clients previously sought financial relief by asking friends and family for help, withdrawing available retirement funds, refinancing an existing mortgage known as home equity refinancing, selling other unwanted or unneeded possessions, or using any other means to obtain immediate cash.
Personal injury settlement loans are usually a last resort. As we discussed here, lawsuit settlement loans can sometimes hedge against an unsuccessful outcome in a lawsuit. However, in the vast majority of cases, settlement loans are only used if no other means of relief are available.
How Personal Injury Settlement Loans Can Be Used
There are absolutely no restrictions on the use of a settlement loan. Most often, plaintiffs use the cash to pay living expenses. In some instances, plaintiffs and their attorneys pay for case expenses such as expert fees, court costs, deposition testimony, accident reconstruction exhibits, 3D Rendering of positive MRI studies and medical treatment.
Another common example is paying for needed surgical procedures is there is no available coverage. This is referred to as surgical lawsuit funding and the way it works is this:
A plaintiff is involved in an accident which results is serious injury. After consulting with doctors, surgery is recommended. Because the plaintiff has no health insurance to cover the cost of the procedure(s), he contacts a personal injury settlement loan company to pay the medical provider. The plaintiff, provider and company enter into an agreement where plaintiff pledges a portion of the future proceeds of the case to the company. In return, company pays the provider directly including the surgeon, surgery center, staff, and others. The client receives the treatment, doctors get paid, and the attorney gets to pursue a more valuable case.
Any expenditure which immediately benefits a plaintiff can be a worthwhile use of the funds.
Personal Injury Settlement Loan Basics
Personal injury settlement loan transactions offer immediate financial support. In exchange, the personal injury plaintiff pledges a portion of the future proceeds of the case, if any. In other words, once the case is favorably resolved, the advance is repaid. If the case is unsuccessful, there is no repayment. Because of this, a personal injury settlement loan is really not a loan in the traditional sense of the word.
Rather, settlement loan deals are actually a transfer of property rights in the potential proceeds. Again, if there are no proceeds, then what the lawsuit loan company purchased is essentially worthless. The company has no recourse against the plaintiff in that situation.
Repayment is calculated by multiplying a use fee with how long it takes for the matter to conclude.
The Need for Attorney Cooperation with Personal Injury Settlement Loans
Personal injury settlement loans depend on attorney participation. Once an application is completed, requests for information are sent to the attorney of record. Often, clients compile the paperwork themselves, but attorneys remain an integral part of the process. In fact, legal representation is a pre-requisite for almost all lawsuit loan processing.
If a case is approved for funding, attorneys acknowledge the assignment and agree to repay the amount owed at the time funds are disbursed upon settlement. To say the relationship between the representing attorney, the client and the funder is important is an understatement.
Personal Injury Settlement Loans Rates and Cost
Personal injury settlement loans can be “expensive”. The cost is calculated using a percentage rate in calculating the repayment based on time. Some lawsuit funding companies will not label the percentage rate “interest” to avoid confusion. Instead, the calculation is referred to as a “use fee”. Further, there are no payments on a personal injury settlement loan until the advance is repaid in full or until the case is successfully resolved.
Lawsuit Settlement Loan Rate Structures
Settlement funding companies usually use two different types of rate structures. The first structure calculates repayment by charging a monthly percentage rate on the contract amount. The next month the percentage rate is charged on the repayment amount (monthly balance). Because this calculation charges interest on the balance and not the original contract amount, the charges are said to “compound” monthly.
Another repayment calculation method applies a percentage rate to the contract amount, also commonly referred to as the “purchase price” (the amount the lawsuit loan provider “purchases” the property for). This calculation applies a “simple” interest calculation in that the charge is always calculated on the amount of the deal and not the previous month’s balance.
Comparing these two rate structures is easy. Compounding rates can be generally less for the first six months after the advance. Between six month and two years, the difference is small. After two years, a client can save significantly if he/she were to enter into contracts with a “simple interest” calculation.
Lawsuit loan rate comparisons can assist you in understanding the wide range of repayment calculations in the marketplace. You can also use a lawsuit loan payoff calculator and compare the terms. The real difference in cost can be seen after 2 years.
The Effect of Time on Personal Injury Settlement Loan Repayment
Personal injury settlement loans calculate repayment in six (6) month periods. In other words, if a case is resolved within the six-month period, the repayment remains constant. If after that period the case is still pending, the payoff is calculated by adding an additional use fee. This new amount remains the payoff for the next six months.
Let’s say a client sells a part of his case to a settlement loan company for $10,000. The payoff from the date of execution until 6 months later will be $12,000 for example ($10,000*1.20). If the case is ongoing after 6 months, another 20% is added to the payoff. So, if the case is resolved between 6 months and 1 year, the payoff would be $14,000 ($10,000 *1.4).
The advance must be paid in full to discharge the personal injury settlement loan. Partial payments are generally not accepted.
Criticisms of Personal Injury Lawsuit Loans
Over the years, lawsuit funding companies met significant resistance to helping personal injury litigants. Much of these criticisms originate from the insurance industry, specifically property casualty insurers. They often cite “outrageous costs and fees” associated with litigation finance as proof of this evil conspiracy to take advantage of people.
P&C insurers exist to spread the risk of negligence to its policy holders. In many instances, the use of P&C insurance is mandatory (e.g. mandatory automobile liability insurance). Not surprisingly, insurers use various entities to oppose measures such as personal injury settlement loans. After all, these entities are “for profit” enterprises. The less they can pay out in claims, the more profitable they become.
Well financed insurers must defend claims. Defenses take time. If a plaintiff is in such financial strain they must accept a low settlement offer, that is a win for the insurer. Insurers know this and can use delay tactics to compound the problem.
A delay in timely claim payments is the very reason why lawsuit funding exists in the marketplace. Of course, all delays are not caused by “delay tactics”. The civil case backlog in many cities is real and substantial. But any delay in payment is helps insurers and hurts plaintiffs.
Insurers are entitled to defend claims. They are also entitled to their opinions about personal injury settlement loans. Insurers will always look for a way to minimize claims. They seek “tort reform” for many reasons. And they use their financial power to sway public opinion.
Just look at how a personal injury lawyer is vilified in the media as an “ambulance chaser”. Although the entire system is in place as a safety net for injured parties, insurers frame those helping these victims as sleazy perpetrators of fraud.
Propaganda is powerful but opinions are simply opinions. Insurers are entitled to voice their own. Facts however show that litigants look to lawsuit loans to help them bridge the financial gap between the filing of a claim and its ultimate resolution. The success of the lawsuit funding industry is a fact which shows a legitimate need is being filled in the marketplace.
Support of Lawsuit Settlement Funding Loans
If plaintiffs’ needs were not met by personal injury settlement loan companies, there wouldn’t be a lawsuit funding industry. The fact the business has grown in recent years illustrates that clients and their attorneys see the value in the service.
With regard to the claims of unfair contract terms, many lawsuit funding companies use the personal injury settlement loan industry’s best practices as outlined by the Attorney General of the State of New York. Many lawsuit loan companies worked the New York Attorney General in an effort to create certain guidelines for the lawsuit funding industry.
Some of the best practices recommend all contracts contain a disclosure statement which:
- States the total amount to be advanced;
- Itemizes one-time fees, broken out item by item (e.g. application, processing, attorney review, broker, etc.);
- States the percentage fee or rate of return, stated on an annualized basis, including frequency of compounding;
- States the total amount to be repaid by the consumer, broken out by six-month intervals, carried forward to 36 months, and including all fees as well as any minimum required payment amount.
Having to argue for a proven business model seems silly. Nevertheless, funding companies show their commitment to their clients by offering their services in a clear and honest manner.
Types of Cases Which Qualify for Personal Injury Lawsuit Funding
The following types of cases are routinely advanced money prior to settlement.
- Auto Accidents
- Slip/Trip and Fall Cases and other Premises Liability actions
- Workers’ Compensation cases
- FELA (Railroad Workers)
- Jones Act (Maritime Injury)
- Medical Malpractice
- Nursing Home Negligence
- Wrongful Death
- And more . . .
The most common personal injury settlement loan is the auto accident lawsuit loan. These are the most prevalent because large numbers of car accidents occur daily and they are the easiest cases to evaluate for lawsuit funding underwriters.
Slip and fall cases or premises liability lawsuit loans are when a person is injured due to the negligence of a property owner or other party who breached a duty of care. These are also very common.
Approvals depend on factors including the case’s venue (state and county), attorney, availability of documents, insurance coverage, stage of proceedings and host of others.
One universal lawsuit loan requirement is that the plaintiff must be represented by counsel.
Help with Personal Injury Lawsuit Loans
As you can see, lawsuit loans fill a legitimate need in the marketplace. They are an integral part of personal injury law and the legal landscape in general.
If you are involved in a personal injury lawsuit and need money now to pay for such things as car loans, groceries, student loans, mortgage or rent payments, medical treatment or any other expense, call us to see if your lawsuit qualifies for an advance. The money can be used at the plaintiff’s discretion and without any limitation. There are no credit checks and no upfront costs. Call us now for more information and thanks for your interest in the “lawsuit loan” business.
If you have any other questions regarding personal injury settlement loans, lawsuit funding, or another type of legal financing, please contact us at 888-964-2224. When financial strain forces you to consider accepting less than you deserve, don’t wait – call Fair Rate and let us help you by being the best lawsuit funding company.