I take great pride in the services that I provide my clients as a personal injury attorney. Unfortunately, being bound by law, there are some things that I am simply not allowed to do as an attorney. One of these sadly, as we have discussed here in a previous article is to make loans to my clients. No matter how much I may sympathize with their situations, I cannot become involved in their personal finances. To do so would place their case and my license to practice law in jeopardy.
In part because of these rules (and partly because people who are in dire financial straits are considered poor credit risk by traditional loan institutions) but mainly because one of the insurance industry’s favorite tactics, in settling claims, is to stretch the case out as long as possible in the hope that the claimant will settle for less. Simply because they can no longer afford to continue the case, we have seen the rise of a new industry. An industry that either offers great assistance to or is prepared to take advantage of, depending on your point of view, people who find themselves in financial need due to having been injured because of the negligence of others.
What are settlement loans?
These businesses, which are still unregulated to a great extent, offer to loan people money against their future settlements and charge interest and fees in order to make a profit. They are known by several different names including:
- Lawsuit Funding
- Settlement Funding
- Lawsuit Loans
- Lawsuit Cash Advances
However they are all basically the same and offer the same advantages and disadvantages, regardless of what they’re called.
Advantages of settlement loans
There are really only two advantages to borrowing money against any future settlement you might receive and they both come down to the same thing.
1) A settlement loan will give you money to pay your current bills and help you keep your head above water until your case is settled.
2) A lawsuit loan will buy you time and breathing room that may allow you and your attorney to negotiate a better settlement or receive a judgment in court.
Disadvantages of settlement loans
Settlement loans are expensive
Generally, on a settlement loan, you’re going to pay somewhere between a 27% and 60% apr. This means that if you borrow $50,000 your interest will run you a minimum of $25,000 per year. If your case takes just 12 months to settle your case, you will end up having to pay the loan company a total of $75,000 out of your settlement.
Lawsuit loans can be hard to get
Because the company’s making these loans want to make reasonably sure that they will receive full payment of their monies, they are not likely to consider loaning you money unless you pretty much have a slam dunk case. Many people, report having to approach five or more companies before they find one who will offer them financing.
Settlement loans are largely unregulated
As a stated above government regulations have not caught up with this new industry. There are very few limitations placed on what fees or interest they can charge, or governing their disclosure procedures. This brings us to our final point.
Reputable lenders can be hard
Because of this lack of regulation, there are many companies who are less than forthright with their business practices. It is not uncommon for people who have received these loans to find themselves owing much more than they thought they would once their cases are settled.
I am not personally a big fan of settlement loans. I generally encourage my clients to take this route only as a last resort. Still, when the barn is on fire you can’t always be choosey about where your water comes from.
I do hope, though, that you will take the information contained in this article as a forewarning about what these types of the loans may entail. I strongly encourage you, just as I do when discussing personal injury topics, to seek the advice of a qualified attorney before committing yourself to any type of agreement.