The Truth About Pre-Settlement Lawsuit Loans

If you or someone close to you is involved in a personal injury claim, you may have heard about pre-settlement lawsuit loans. Many injury victims are strapped financially, particularly if their injury keeps them out of work for a significant period of time. And because it can take several months or longer to receive a settlement or verdict award, pre-settlement funding might be an attractive option to help bridge the financial gap.

How Do Pre-Settlement Lawsuit Loans Work?

There are a number of different funding companies that offer pre-settlement lawsuit loans in Alabama. Some companies claim to be able to provide loans for as much as $2,500,000, depending on the value of the case, and most of them say that they can get you the money in his little as 48 hours.

They also advertise that their loans are “risk-free”, meaning that like your attorney contingency fee, you only have to pay it back if you win your case. The technical term for this is a “non-recourse” loan. There is also no credit check, so no need to worry if you have a less-than-perfect credit history.

Because you are being advanced a portion of your anticipated settlement amount or verdict award, the company that funds you will almost certainly require that your case is being handled by an attorney. They know that claims in which a personal injury attorney is involved have a much better chance of being successful than those that are handled solely by the injured person.

If you apply for a pre-settlement lawsuit loan, the funding company will get in touch with your attorney or a paralegal/legal assistant who is working on your claim to evaluate the strength of your case and the likelihood that you will recover compensation. For the most part, these loans only go to victims in cases where liability has already been admitted or when admission of liability is a near certainty.

It is important to note that many states do not look favorably on the practice of litigation funding. In Alabama, for example, courts have held that litigation financing agreements go against public policy. But one way that funding companies get around this is by placing the agreement in a state with more friendly laws.

The Major Downside of Pre-Settlement Lawsuit Loans

If a risk-free pre-settlement loan with no required credit check sounds appealing to you, you may not feel this way once you find out how much interest these companies charge. Interest rates vary widely between lenders; on the low end, you can expect to pay around 30% per year, but some charge as much as 60% per year or more.

Pre-settlement funding interest rates are usually calculated monthly, and if you expect to get your settlement within a few months, you might be willing to live with the amount of interest you will pay. But if you do not expect payment for at least six months or longer, then the interest on the loan will add up quickly.

Advice About Pre-Settlement Lawsuit Loans

We cannot say whether or not you should take out a pre-settlement loan, that is your decision. However, here are some things you should consider if you are thinking about pursuing this option:

• Explore Other Options First: Because you will be paying exorbitant interest rates with a pre-settlement loan, it is in your best interests to look at other financing options first. For example, maybe you have a family member who can lend you the money, or maybe you have some equity in your home that you can access. Even maxing out credit cards would probably give you a better interest rate than pre-settlement financing.
• Look for a Reputable Funding Company: There are numerous companies out there that offer pre-settlement funding, and it can be difficult to find a company you can trust. The best place to start is to speak with your attorney. Your attorney may know a reputable lender who can help you, and they will definitely be able to give you additional advice and counsel on whether or not this is a good idea in your situation.
• Take Only What You Need: If you do decide to take out a pre-settlement loan and you have found a company that you believe you can trust, do not take out more than the amount that you absolutely need to get you through until you receive your settlement or award. If you take more than you need, you will unnecessarily be paying extremely high interest rates.

Suffered a Personal Injury in Alabama? Contact Burge & Burge for Assistance

If you or a loved one has been injured because of the recklessness or negligence of another party, Burge & Burge is ready to go to work for you! To schedule a free consultation and case assessment with one of our attorneys, message us online or call our office today at 205-251-9000.