What Is a Lawsuit Loan? Here Is What You Need to Know
Matters to do with court, are rarely cheap, especially if you’re filing a lawsuit. Fortunately, plaintiffs have the option of borrowing against their expected awards or claims to finance the legal proceedings. This funding is what is known as a lawsuit loan.
While most would argue that taking a lawsuit loan isn’t a very wise move, others swear by lawsuit loans. However, if you’re financially constrained, you really don’t have much of an option.
These loans are common with personal injury claims because the plaintiffs need money to cover medical expenses while the proceedings continue.
What is a lawsuit loan? In this piece, we’ll be highlighting everything you need to know about lawsuit loans. Starting with what it is, its pros, cons, and alternatives to lawsuit loans.
What Is a Lawsuit Loan?
As mentioned earlier, a lawsuit loan is a kind of cash advance plaintiff’s request from a lending company. You receive this cash advance against the settlement claim or an award from the court.
You can take a lawsuit loan for medical malpractice, workplace injury, wrongful death, and other lawsuits.
These loans are only available for a few types of cases, and it’s also a relatively new type of financing for plaintiffs. Lawsuit loans really come in handy for people that need legal intervention but are in the financial doldrums.
How Do Lawsuit Loans Work?
The main stakeholders of a lawsuit loan are the plaintiff and the lending company. The lending company agrees to buy a portion of the plaintiff’s award or settlement claim. In doing so, the company lessens the plaintiff’s financial burden during the legal proceedings.
First, you must apply to the lending company for a lawsuit loan. The company then analyzes your application to deem whether it’s a viable case. It also estimates the award you could get from the case should the court rule in your favor.
After the lender works everything out, the company agrees to give you some amount of money. You will have to repay the money with interest after your case hearing. Some lending companies may charge a special “funding fee” or “service fee.”
You don’t have to pay anything if the court doesn’t rule in your favor. You can also borrow lawsuit loans for special types of out-of-court settlements.
Advantages of Lawsuit Loans
Sometimes financial constraints may put legal proceedings to a halt. This works to the detriment of the plaintiff while it lets the defendant off the hook. When you need extra cash to keep the case going, then a lawsuit loan is a viable option.
Here are a few advantages of lawsuit loans
Covers for You Financially
We all know how expensive life can get, and throwing legal fees into the mix can make it unsustainable. Lawsuits loans are one way to tide you over financially and take care of the legal fees. That way, you can focus on your mortgage payment, car loans, and medical bills.
A lawsuit loan can give you breathing space financially to juggle between upkeep and legal fees. That way, you can devote most of your attention to the case at hand, because all financial matters are in order.
Gives You Time Allowance
You need adequate time to consider settlement offers before choosing a course of action. You won’t have much time if you depend on the settlement to offset pending bills like your medical bills or upkeep. A lawsuit loan takes care of your pending financial needs so you can weigh out all your options and choose the right settlement for your case.
A lawsuit loan might also give you the financial leeway to pursue a trial if you don’t receive a fair settlement. However, before you do that, consult with your attorney to make sure that doing so is a wise move.
Cons of Lawsuit Loans
Taking a lawsuit loan is not without its downsides. Here are a few disadvantages of lawsuit loans.
Not all cases can qualify for a lawsuit loan, and it may not be a solid alternative for most cases. Remember, the lending company stands to lose a lot if you don’t win the case. As such, the company only agrees to cases with a high winning chance.
Remember, you won’t have to pay anything if you lose the case. That’s why lenders are very picky about the cases they choose to fund. So there’s a likelihood that the lending company might reject your application.
It’s Hard to Find a Good Lender
Looking for the best pre settlement funding company is easier said than done. Lawsuit loans are largely unregulated because it’s a relatively new and eccentric type of financing. As such, you should expect a few fraudulent and gypsy lending companies. So before you land a reputable lender, you really have to do some serious digging.
There’s no other way around; lawsuits loans are very costly. Thankfully, you won’t have to dig into your own pockets for most of the payment. Lenders typically charge a percentage of your claims or award.
They also charge a funding fee or an interest, besides you paying back the amount you borrowed. The longer it takes for the court to settle the case, the higher the interest fee you end up paying.
Choose the Right Lender
Hopefully, we’ve answered the million-dollar question, “What is a lawsuit loan?” If you’re considering a lawsuit loan, make sure you find a reputable lender for your loan. Some unscrupulous lenders will charge unreasonably high rates for the service.
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