What Is a Lawsuit Loan?

When an individual suffers a personal injury, a personal injury lawsuit offers the best chance of recovery from the resulting damages. However, the legal process is time-consuming and many personal injury cases take months or even several years to reach conclusions. Additionally, a defendant may receive a judgment and then appeal the decision, dragging legal proceedings on even longer.

During this entire process the plaintiff’s personal obligations do not stop; he or she will still need to cover basic living costs and pay for food and other daily expenses. A plaintiff in a personal injury case may need money sooner than a judgment can provide it. In some cases, a lawsuit loan can help offset this economic strain.

How Does a Lawsuit Loan Work?

A lawsuit loan goes by several names.

  • Settlement funding.
  • Lawsuit funding.
  • Litigation financing.
  • Lawsuit cash advances.

All of these financial agreements function similarly. A plaintiff files a personal injury lawsuit and then files for a lawsuit loan with a legal lending company. The company investigates the lawsuit and determines the amount of compensation the plaintiff could receive. If the lender approves the loan application the plaintiff receives a lump sum immediately on the condition that he or she repays the borrowed amount plus a funding fee using the proceeds of the judgment.

While most legal lenders do not require payments until a plaintiff’s case concludes, it is essential for anyone who applies for a lawsuit loan to understand the interest rate for these loans. If a plaintiff receives a lawsuit loan, the funding fee typically equals a small percentage of the total amount each month until the case reaches a conclusion. This may not sound like very much at first, but the borrower may end up paying two to three times more than the amount borrowed by the time the case reaches a conclusion.

Repaying a Lawsuit Loan

After a plaintiff receives a judgment award or settlement, some expenses come out of this total before the plaintiff must repay a loan borrowed against the judgment. A few of the initial expenses to come off include attorneys’ fees, litigation costs, and medical liens for any medical care the plaintiff required as a result of the defendant’s negligence.

There are a few potential risks for legal lenders. Primarily, if a plaintiff borrows for a lawsuit loan but ends up losing the case, the borrower does not have to repay the loan. Additionally, if the plaintiff’s settlement or case award is less than expected, the plaintiff does not have to pay any more than the amount of his or her settlement. For example, if a borrower receives a $10,000 lawsuit loan but the case only settles for $5,000 after expenses, the borrower would only need to repay the $5,000.

When a Lawsuit Loan Can Help

There is a measure of risk whenever someone borrows against a future judgment. Depending on how long the lawsuit lasts, the plaintiff will still need to repay interest and the funding fee per month until the case concludes. The borrower is responsible for paying back the amount borrowed plus funding fees, and those funding fees add up very quickly.

A lawsuit loan could potentially help an injured person cover his or her personal expenses much sooner than if he or she needed to wait for a judgment. However, if there is any risk of a case dragging on longer than originally anticipated, a lawsuit loan can work against the borrower. Any plaintiff wondering about ways to expedite payment from a lawsuit should consult with a personal injury attorney before agreeing to any type of lawsuit lending service. The attorney may be able to help the client determine how long the case will last, potential costs of funding fees while waiting for a judgment, or alternatives to using a legal lending service.