You may have been injured in a car accident or otherwise sustained damages caused by the fault of another party. Regardless of the strength of the evidence proving that you are entitled to compensation, lawsuits take time to reach a verdict or settlement.
Insurance companies are notorious for using delaying tactics designed to increase the financial pressure on cash-strapped plaintiffs to settle for less than their cases are worth because they need money to pay living expenses and medical bills. Lawsuit loans offer an innovative way to relieve financial pressure by taking a cash advance against the value of an anticipated settlement or judgment.
An opportunity to get out of the financial hole that being injured and out of work puts you in may sound appealing, but you need to know more before deciding whether a lawsuit loan is right for you. Fees and the terms of lawsuit funding vary from company to company, so you need to shop and compare rates and terms before applying for a cash advance.
This guide gives you an overview of lawsuit loans to get you started. Read through it, compare rates and terms of several companies, and talk it over with your personal injury attorney before submitting an application.
What are lawsuit loans?
Lawsuit funding is a relatively new industry made up of companies offering to advance your money based on the anticipated value of the settlement or judgment of a lawsuit that you filed as a plaintiff. Companies use a number of different names to describe the process of advancing money against an anticipated outcome, including:
- Lawsuit loans.
- Lawsuit funding.
- Pre-settlement loans and pre-settlement funding.
- Settlement funding.
- Litigation funding and litigation financing.
Whatever terminology companies use to describe it, the product funding companies offer is a cash payment representing a portion of the value of a settlement or judgment anticipated in a civil lawsuit where the plaintiff filing it seeks monetary damages. A lawsuit seeking a restraining order to prevent the construction of a commercial building in your residential neighborhood would not qualify for lawsuit funding because the final result if you win would not be a monetary judgment or settlement.
Typically, lawsuit funding companies look for personal injury claims, including car accidents, product liability claims, and medical malpractice cases. Employment cases, such as wrongful termination, and commercial lawsuits would also qualify for pre-settlement funding as long as the relief sought by the plaintiff is monetary damages.
Is lawsuit funding a loan?
The term “loan” used in some of the marketing of lawsuit loans tends to be misleading. The cash advance offered by the funding company generally does not come with a personal obligation by the person receiving it to repay the debt as you would see with a loan you obtain from a bank.
Instead, the funding company looks for repayment of the cash advance from the money a plaintiff receives through a settlement or judgment. The amount advanced is based on the funding company’s estimate of the value of the case. Your creditworthiness or ability to repay the “loan” is not a consideration in the process companies use to determine whether to offer to advance money on a particular lawsuit.
Companies, such as Oasis Financial, do not impose a personal obligation on you to repay the money advanced and interest or fees charged by them. This is true even if you lose the lawsuit. The risk of loss is completely on the funding company as it is a non-recourse loan, which means they cannot come after you for payment.
Fees, interest rates, and terms of the cash advance are set by each company rather than being controlled by state or federal laws. As a result, you must do your homework before choosing a company to apply to for funding. Make certain to get all of the charges and terms presented to you in writing before you submit an application.
The application process for lawsuit funding
The process to obtain lawsuit funding is relatively simple. The first requirement before completing an application is that you have a lawyer representing you in a lawsuit filed and pending in a state or federal court.
Now that you have a lawsuit pending, you can compare the rates and terms of the companies offering lawsuit loans in your state. Companies may not do business in all states, so that might be one of the first things to check about a company.
The process to determine if your case qualifies for funding and the amount a company typically includes the following steps:
- File an application: Most companies give you the option to file the application online. The application usually asks for information about the lawsuit and contact information for the attorney handling it for you. It does not ask for details about your income and credit history because these are not relevant to the process.
- Funding company obtains information from your attorney: Companies obtain most of the documentation and details about the lawsuit by speaking with your attorney, which is why you need to discuss it with your lawyer before moving ahead with an application. If you don’t keep your attorney in the loop, it can delay the processing of the application.
- Evaluation of the lawsuit: The funding company uses the documents and lawsuit information to evaluate the likelihood of a settlement or judgment in your favor. Unless underwriters at the funding company believe the evidence supports your claim for damages, they will not approve the cash advance. Underwriting also determines the estimated value of the lawsuit and bases the cash advance on it.
- An offer to fund a lawsuit loan: A written offer outlining the amount of the cash advance, the interest and fees charged by the company, and the terms of the funding are forwarded to you. Carefully review the offer with your attorney to decide whether it is the best option.
If you accept a lawsuit loan and later decide that you require additional funds for living expenses, to pay medical bills, or to meet other financial needs, you have the option to apply for additional funding. There are no limits on the number of lawsuit loans you may request.
Common questions people have about lawsuit funding
Questions to ask before deciding if a lawsuit loan provides the best option to resolve financial issues include:
- What options do you have instead of a lawsuit loan? Other options that may be less costly than a lawsuit loan include reducing the damages demanded to encourage a quicker settlement, asking financial help from a relative, taking a personal loan from a bank or a cash advance against a credit card.
- How much does a lawsuit loan cost? The interest charged depends on the policy of the company, so shop around and ask about interest rates and other fees that will add to the amount that must be paid from the settlement or judgment.
- Can’t I get an advance from my attorney? No, ethical rules prohibit attorneys from lending money to their clients.
- How long will it take to get the cash advance? The processing time for approval of a lawsuit loan is relatively quick because it does not require verification of your income or credit. Many companies offer electronic funding of the cash advance within 24 hours of approval of your application.
- How does a lawsuit loan get repaid? Repayment of the money advanced along with the interest and any fees charged by the funding company comes from the judgment or settlement of your lawsuit.
- How safe are lawsuit loans? If the lawsuit does not end with a judgment or settlement to repay the lawsuit funding, it is the company taking all of the risk and absorbing the loss. However, the interest charged for the money typically reflects this risk and is higher than you would pay to a bank on a personal loan.
Your personal injury attorney can help you to get answers to these and other questions that you may have about lawsuit loans. The answers will let you decide whether a lawsuit loan is the best resource to meet your current financial needs.