Personal Injury Lawsuit Loans: FAQs and Tips on Doing it Right

A personal injury lawsuit loan can provide financial relief while your case is pending. It’s not a loan in the traditional sense. It’s really more of a cash advance against your future settlement proceeds. Personal injury loans are often advertised as lawsuit cash advances, pre-settlement funding, and non-recourse financial assistance.

Personal injury cases can go on for months, sometimes years. Your lawyer may be involved in lengthy negotiations with the insurance company or pre-trial discovery. Maybe you’re waiting on a trial date. Whatever the delay, your life still goes on. And along with it are the bills you have to pay.

You may have rent, utility bills, car payments, medical bills, child support and any other number of financial obligations to meet every month. If you’ve been injured and out of work you may be falling deeper and deeper into debt. Friends and family can only do so much. You can apply for a bank loan, but unless you have some collateral, your chances of receiving a loan will be slim.

Applying for a personal injury lawsuit loan is a relatively simple process. There are many personal injury loan companies on the internet, in the telephone book, on television, and on park benches. They’re not hard to find.

Frequently Asked Questions about Lawsuit Loans

Can my attorney loan me money?

Not really. Professional ethics prohibit an attorney from loaning money to a client as an advance against the client’s settlement proceeds. Doing so could result in a conflict of interest. For example, your attorney loans you $1,000 while your case is pending. Then after your attorney settles your case, you decide she settled for too little. You don’t feel that you should have to pay back the loan because she didn’t settle the case for enough money.

Does your attorney hold your settlement money until you agree to the terms of the settlement and the repayment of her loan? Does she sue you? Do you sue her? Do you file a grievance with the state bar? These are the types of issues that can come up if attorneys loan their clients money.

Most personal injury attorneys have more than one client. If they were to begin making loans, they would eventually turn into the same loan companies who already make settlement loans. It’s not something most attorneys want to do.

What role does my attorney play in the loan process?

One of the requirements of getting a settlement loan is your attorney’s agreement to cooperate with the loan company. Without your attorney’s cooperation, you’ll have a tough time getting the loan. Because the loan company has a financial interest in your case, they’ll want all of your case details before they loan you any money. They’ll want to review your file and discuss the specifics with your attorney.

Most personal injury attorneys will do everything they can to dissuade their clients from getting a lawsuit loan. Not only because they have to deal with a finance company representative, but they are breaking the attorney-client privilege by cooperating with the loan company. Even with your consent, it’s still not a good idea. Once your attorney hands over any portion of your file, she loses control over where its contents may wind up.

Your attorney’s reluctance to breach the attorney-client privilege is based on her legal duty to act as your fiduciary. That duty is to protect her client at all times and in all matters related to her client’s case.

You and your attorney have to sign an agreement guaranteeing repayment of the loan from the settlement proceeds. When your attorney agrees to cooperate with a personal injury lawsuit loan company, she becomes a form of trustee for the company. To facilitate your loan, your attorney must agree to protect the company’s interest and make sure they get their money before you get yours.

How does the loan process work?

The collateral for your loan will be your personal injury settlement or jury award. You normally won’t have to put up any other collateral to secure the loan. The same holds for your credit rating. Whether you have good credit, bad credit, or no credit at all, as long as your settlement will be sufficient to repay the loan, you’ll usually be approved.

You can apply online to any number of loan companies. On the application, you describe the details of your case and give your attorney’s contact information. The loan company then verifies your information. After speaking with your attorney, the loan company sends your application to an insurance company that underwrites such loans. Their attorneys study your case and do research on other cases similar to yours.

The insurance underwriters look for similar fact patterns and study the average settlement amounts for cases like yours. At that point they’ll contact the loan company and advise them on their findings. If the loan company decides your case has a high probability for settling at an amount which they feel is enough to repay their loan, they contact you and arrange to give you the money.

Loan companies normally agree to loan you a maximum of 10 percent of the amount they think your case will settle for. If the loan company thinks your case will settle for $30,000, the most they’ll probably loan you is $3,000. It isn’t much, but it may be just enough to pay your bills until you receive your full settlement.

If your case is lost or doesn’t settle, you’ll owe the loan company nothing. That rarely happens, as most loan companies won’t make a loan unless they are convinced they will get their money back.

What are the disadvantages to a personal injury loan?

Personal injury lawsuit loans are usually quite small. And because personal injury finance companies are unregulated by state and federal law, they can get away with charging exorbitant interest rates – often as high as 50 percent per year!

Depending upon the company you apply to, some will charge a flat fee plus percentage/interest charges to make the loan. Others may charge recurring monthly fees. Even a small loan can accumulate high interest charges and fees in a short time. There’s also a chance the ever-increasing debt you’ll owe the loan company will cause you to settle your case quickly and for less than it’s worth.

Although your settlement may be substantial, you’ll still have to pay your attorney’s fees and costs. Then you’ll have to pay back the loan in an amount far above the original amount you borrowed. Unfortunately there are many cases of people who have ended up with little or no money after paying their attorney’s fees and the loan. And worse, some have actually gone into debt.

Imagine you borrow $1,000 with a five percent interest rate compounded monthly. Your case goes on for two years before it settles. With the accumulated interest, you’ll owe the lawsuit loan company over $3,000. That’s 150 percent of the amount you borrowed!

Some Tips if You’re Thinking About Applying for a Lawsuit Loan

  1. Look around for the lowest interest rate and be careful of hidden administrative fees, or points. Be sure you understand what the compounding interest will be and how you can compute it yourself.
  2. Don’t use loan brokers. They charge higher fees. Deal directly with a personal injury lawsuit loan company. If you’re not sure, ask the company if they are making the loan directly to you or if they’re referring you to a loan company.
  3. Make sure you know exactly how much the loan will ultimately cost you when your case finally settles.
  4. Don’t sign any contracts or loan agreements until your attorney has reviewed them for you.
  5. Listen to your attorney. She’s looking out for your best interests. Value her advice and counsel, even if it may not be what you want to hear.

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