Plaintiffs in personal injury cases are often tempted to look into settlement loans. Financing a personal injury lawsuit can be challenging, especially when plaintiffs are unable to work because of their injuries.
Some lenders offer settlement loans to accident victims who could eventually be offered a lump settlement in a personal injury case. The accident victim pays back the loan- plus interest- if he or she wins the case. If the case is lost, the loan is not paid back.
Clients need to be very careful about what they're getting themselves into when it comes to this type of borrowing. Most legal and financial experts recommend avoiding a settlement loan unless plaintiffs are absolutely unable to meet their financial needs through any other means.
Those considering a settlement loan should be aware of the following:
- Settlement loans are considered litigation funding- Technically, a settlement loan is a form of litigation funding. You don't have to pay back the loan if you lose your case. This means that the lender is essentially making an investment in your case.
- You'll only be able to borrow if a settlement is 100 percent certain- Because a settlement loan is an investment in your case, you won't be able to find a lender for a settlement loan unless it's basically impossible for you to lose.
- Your attorney will be contacted- Don't think that you can take out a settlement loan without your attorney knowing. The lender will consult your attorney when researching your case and determining whether or not it is a worthwhile investment.
- Interest rates can be exorbitant- Providing lawsuit settlement loans is often a very lucrative business for lenders because they can sometimes get away with very high interest rates. Some borrowers end up paying off settlement loans at an interest rate of more than 100 percent annually.
- Your loan amount will be much less than your expected settlement- Don't expect to be offered a loan of any more than about a third of the projected settlement amount. The lender knows that your lawyer will have to be paid if you win, and you're likely to have medical bill that must be paid with your settlement as well.
- Interest charges will be higher the longer you wait for settlement- The longer it takes for your settlement to come, the more interest your loan will accumulate. It can be hard to predict when your settlement will come, so it's not easy to predict what the total cost of interest charges on your settlement loan will be. Contact a professional like Richard M Altman for more info.