If you have a lawsuit pending or a case settled and are waiting to be paid, you may want to consider taking out a “court loan”. Lawsuit loans are not actually loans, but are considered pre-settlement funding or post-settlement funding. This is a cash advance on the future proceeds of a civil lawsuit, most often cases involving personal injury.
Below are some important tips you should know before you blindly apply.
Tip 1 – Financing the lawsuit settlement should be your last resort
If you have other ways of borrowing money than taking financing, you may want to consider this route before considering legal loans. Using your money or borrowing money from friends and family can be a more cost effective way, as funding a lawsuit can be expensive.
The reason for this lawsuit loans are not actually loans because they are not refunded in case of failure. For this reason, financing a lawsuit is risky for the “lender” because the case is not guaranteed, and a settlement may not cover all expenses.
Since legal loan is not cheap, you should explore all other cheap money options. If you use the money in your bank account, you only lose the opportunity cost of earning on that money. Pricing of loans in court is normally more than 30% per year and often even more expensive.
Tip 2 – Apply for a loan in court once your case has developed
Most lawsuit finance companies will not advance money to a client until 90 days after the accident. The reason for this rule of thumb is that it takes time for your case to develop before you understand its value. Variables such as the extent of the injury and the insurance coverage available may not be immediately available. At a minimum, legal loan companies will wait 30 days after the accident provided documentation is provided.
Typically, finance companies will provide advances of up to 10% of what they believe the case is worth. For example, if they think your case is worth $ 50,000, you may be eligible for an advance of up to $ 5,000.
When a finance company takes out a case, they review the documents, usually a police report explaining liability, an overview of medical treatment, and the insurance limits available. Other factors that affect the value of your case may include lost wages claims and property damage to your vehicle.
The very reason for litigation is to level the playing field between financially sound insurance companies and plaintiffs under physical and financial pressure. Lawsuit loans give plaintiffs the opportunity to properly plead the case – and this can take years in some cases.
The repayment of the loan in court depends on the time it takes for a case to be settled. While waiting for your case to develop, not only are you making sure that the relevant documents are available, but you are also minimizing the reimbursement amount.
Tip 3 – Ask Your Lawyer About Lawsuit Funding
Your lawyer is used to dealing with personal injury cases like yours, so a client may have used legal funding before. Ask them to recommend a finance company that their clients have used successfully in the past. If your lawyer refuses, learn how to shop for a lawsuit loan alone. There is a lot of information available and not as difficult as it sounds.
Also make sure your lawyer knows you are taking a lead. Your lawyer will need to sign an agreement with the finance company, so make sure it’s not a surprise to them. In addition to legal advice, your lawyer may also be able to provide advice here. It’s important to get the best deal for a loan in court – this ensures that there will be enough money at the end of the case to get you well – even after funding and legal expenses have been paid off.
Tip 4 – Take a small settlement loan if possible
Consider withdrawing as little money as possible from a legal loan. Since legal financing is expensive, you don’t want to overestimate how much you’ll need. Obviously, the less you receive, the less the refund will be at the end of the case.
Remember, you want to make sure you don’t have to pay back more money than you need to. The final reimbursement amount must NOT interfere with settlement negotiations. If a reasonable offer to settle is received, it can be accepted because the privileges on the case do not consume all of the proceeds.
Plus, if you run out of money, you can always go back and request an additional cash advance. In some cases, you can borrow a specific amount of money each month to meet your monthly bills. Instead of thinking that I need $ 12,000 to survive this year, consider taking $ 1,000 per month throughout the year.
Tip 5 – Settlement financing costs and fees
As I have mentioned many times, funding lawsuits can be expensive. Competition has brought the rates closer between companies, but it is always important to seek the best rates and rates. Legal loan costs consist of the percentage applied to the contract amount and processing fees and / or other fees which are also added to the amount the applicant receives. Read the contract carefully, as lawsuit funding is an unregulated market.
For example, if you are using a lawsuit financing broker, their fees can be up to 15% of the amount received and will have a significant impact on the reimbursement amounts over time.
Final thoughts
Legal loans can serve as a lifeline for plaintiffs who urgently need money to pay for their immediate needs. Whether plaintiffs need immediate medical treatment or simply need to keep a roof over their heads, lawsuit funding contracts can help litigants stay afloat. There are costs, however, and understanding these will lead to better choices as to whether prosecution funding should be obtained.
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