Are Lawsuit Loans Worth It? Understanding the Costs and Benefits
Plaintiffs who face financial strain might think they are out of options. Those who consider lawsuit loans as a solution might wonder: “Are lawsuit loans worth it?” In this post, we examine this important question and identify both the benefits and disadvantages of legal funding.
What Are Lawsuit Loans?
Lawsuit loans, also known as pre-settlement funding, are cash advances against a lawsuit’s expected settlement. Lawsuit loans provide plaintiffs with immediate financial relief during ongoing legal cases – often on the same day. These loans are non-recourse, meaning the advance is only repaid upon a successful resolution to the case. If the case is lost, no repayment is made, nor can the lawsuit “lender” pursue collection against a plaintiff personally.
Lawsuit loans’ non-recourse nature is based upon their design. Instead of a plaintiff borrowing a sum of money, they sell a portion of the lawsuit’s future recovery. If they fail to recover, what was purchased, (part of the recovery) is essentially worthless and no repayment is required.
Non-recourse financing is particularly appealing when plaintiffs are unable to work, have poor credit, or otherwise cannot qualify for personal loans. Lawsuit loans serve as a financial lifeline to bridge the gap between a lawsuit and its ultimate resolution.
The True Cost of Lawsuit Loans
Although lawsuit loans provide vital financial support, they can be costly. Interest rates and fees for lawsuit loans are typically higher than traditional loans. Depending on the lender and the duration of your case, the effective annual percentage rate (APR) can range from 30% to 60% or even higher depending upon a variety of factors.
Cost is a main lawsuit loan disadvantage. Because repayment amounts generally increase over time, some plaintiffs find themselves repaying more than they received. This is due to the time value of money and does not factor in the value of plaintiffs’ use at the time of funding. For example, if a plaintiff borrows $10,000 and the case settles after 3 years, the payoff could be over $20,000 after interest and lawsuit loan fees.
Benefits of Lawsuit Loans
Of course, there are lawsuit funding advantages as well. Most plaintiffs turn to lawsuit loans as a last resort. Yet the advantages can make financial sense. These include:
- Immediate Financial Relief: Lawsuit loans provide quick cash to cover essential living expenses, medical bills, and legal costs.
- Non-Recourse Structure: You only repay the loan if you win your case, reducing financial risk.
- More Time for Negotiation: With financial pressure alleviated, you can afford to wait for a fair settlement rather than accepting a low-ball offer.
- Creditworthiness Not a Factor: Plaintiffs offer a portion of the lawsuit proceeds in return for the advance. Thus, creditworthiness, income, employment status, and asset verification are not relevant.
Other Drawbacks of Lawsuit Loans
In addition to the cost as discussed above, lawsuit loans do have some disadvantages as well. These include:
- Reduced Final Payout: The interest rates and fees can consume a significant portion of your settlement. After repaying the loan and accrued interest, you may receive much less from your settlement.
- Not Always Necessary: If you can manage your expenses through other means, a lawsuit loan may not be the best option. Most plaintiffs explore other liquidity options before they decide if lawsuit loans are worth it in their specific circumstances.
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What You Need to Know
If you want to get a lawsuit loan, you should consider comparing lenders from multiple companies. Reputable lawsuit funding companies are transparent about their products. If a company is not forthcoming, you have the option to search elsewhere.
Also, take time to understand lawsuit loan contract terms. Although specialty finance agreements, lawsuit loan transactions are not really that complex. They are simply a sale of a portion of your settlement/recovery. Yet you should be aware of what you are getting into. Be sure to clarify interest rates, fees, and repayment conditions before signing.
Finally, be sure to explore lawsuit loan alternatives as they may offer terms that will better serve your interests.
Lawsuit Loan Eligibility
Unfortunately, not everyone qualifies for lawsuit loans. Plaintiffs must have an active claim/lawsuit. They also must be represented by an attorney on a contingency fee basis (they are only paid legal fees if the case is successful). Finally, the likelihood of success is the main factor in lawsuit loan approvals. The stronger the case, the better the chances it will meet lawsuit loan eligibility requirements.
Keep in mind that settlement value must be enough to justify funding. This is especially true when plaintiffs seek multiple lawsuit loans on the same case.
Are Lawsuit Loans Worth It?
Whether a lawsuit loan is worth it depends on your financial situation and the expected timeline of your case. If you face urgent financial needs and have no other resources, a lawsuit loan can provide critical relief. However, if you can manage without one, avoiding the high fees and interest will leave you with a larger settlement in the end.
Although lawsuit loans can be a lifeline during financial hardship, it’s crucial to weigh the costs against the benefits. By carefully considering your needs and exploring all options, you can determine if a lawsuit loan is truly worth it for your situation.
Why Choose Fair Rate Funding
You obviously have a choice in who you use for legal funding. We offer:
- Simple and Easy Process – Approval only on the strength of your case.
- Risk – Free Proposition – Only repay if you win your case.
- Rapid Approval and Funding – Approvals often within 24 hrs.
- Up Front Pricing – Absolutely no hidden fees.
Give us a call and learn about your options. We are here to help and are at your service.
Thank you for your interest in Fair Rate Funding.
