If you are in a lawsuit waiting (and hoping) for a settlement in order for you to get back on track, and while bills are piling up while on the wait, you may want to have a look at a settlement loan.
What is a settlement loan?
A settlement loan has a lot of names. But it is also referred to as a lawsuit loan, pre-settlement loan, settlement cash advance, settlement funding, and others. The concept behind this is that you are able to take out cash against the proceeds of a lawsuit (in case you win the case).
To make it more clear, let’s say you have had a car accident and clearly it was not your fault but due to another driver’s negligence. So due to the damages you have incurred, you are suing for restitution. While you are on the wait of the results of the lawsuit (and you know the odds of winning is in your side), you can take out a loan (from companies who specialize in this type of funding, you’ll be surprised to find several) against what you are expecting to receive from the case.
Now, the question is – Is it a good idea to take out a settlement loan, as in this example, a car accident loans? Let’s take a look at the pros and cons of taking out a settlement loan and then you can decide for yourself if this is the right move for you.
How settlement loans work
According to many practicing lawyers specializing in personal injury claims, the idea of taking out a settlement loan is very helpful. In recent years, settlement advances have in fact grown incredibly fast because people had more realization that this type of loan exists.
These types of loans are non-recourse. Therefore if the victim is not able to get the settlement money, there is no requirement to settle the loan. This permits loan providers to demand rates that exceed the state’s usury laws.
Settlement lenders are in fact private companies. They raise money (funding) from private investors. Note though that since there’s no obligation to repay the loan, then this type of funding is not really a loan but more of a cash advance from the money the victim or plaintiff is expecting to receive from the lawsuit.
Lending companies are taking the risks and so before they even provide loans, they look closely into the case and study the odds of the plaintiff winning the case. So if the odds are high for the plaintiff, a settlement loan would likely be granted.
Is there a downside to taking out settlement loans?
As mentioned earlier in this post, “These types of loan are non-recourse. Therefore if the victim is not able to get the settlement money, there is no requirement to settle the loan. This permits loan providers to demand rates that exceed the state’s usury laws.” This means that in the event that the settlement had been released, the lending company has the right to collect more than what had been invested. So if you took out a $10,000 in settlement loan, the lending company gets back at least $14,000 from the settlement.
So really, the lending company charges at least 40% of the money invested.
Is a settlement loan right for you? The answer to this really boils down to the plaintiff. If you really need money at the instant after the accident, and if you have no other choice but a settlement loan, this could be the right move. But if you have other options and you know in your heart that you are going to win the case, you can consider other options such as a personal loan. Note though that traditional loans don’t care if you win or lose the case, you still need to pay the loan at the end of the day. Consider your options before taking out a loan.
Settlement loans are risk-free as the funds are non-recourse. Nonetheless, always take a look at the end of the line, how much is the lending company gets back in case you win the lawsuit? If you lose, you don’t have to pay a dime.