If you need money, but cannot afford to pay immediately, consider taking out a lawsuit loan. This type of loan can help tide you over until the case proceeds or, in the event of a default, a judgment.
However, these loans are usually not a good choice if you’re not able to pay for living expenses during a lawsuit. Here are some of the reasons why:
- Not every case will qualify for a pre-settlement lawsuit loan.
- Lawsuit loans can be expensive.
- They are not always regulated like traditional loan types.
- It can be hard to locate a reputable lender to work with.
Consumer groups have been vocal about their opposition to lawsuit loans. This is because they believe this type of loan can encourage more lawsuits, which could result in higher settlements. Some of the groups that oppose lawsuit loans are composed of business groups and insurance companies.
What Are Lawsuit Loans?
Getting into a lawsuit can be a challenging and time-consuming process. It can also affect your financial situation if you lose income or face unforeseen expenses. If you’re in this situation, then a lawsuit loan can help you get through the process while still keeping your financial situation under control.
Advantages of Lawsuit Loans
There are multiple benefits of considering a lawsuit loan. The first is that it can help cover your expenses for a while. You can use the money to make car payments, mortgage payments and medical bills while your lawsuit is settling.
The next benefit is that litigation loans may help you get a better settlement offer. If you’re not sure how much money you should receive or how long the lawsuit will last, taking out a loan can help you delay the decision-making process.
A lawsuit loan can also help relieve financial stress. If the defendant is not offering a fair settlement, this type of loan can give you the financial muscle to go to trial.
Disadvantages of Lawsuit Loans
When the settlement or judgment proceeds are used to pay the loan, you’ll pay the full amount back. This means that you won’t have to pay more than the amount borrowed. Usually, it takes a couple of years for a lawsuit to settle. If the settlement proceeds are less than the amount borrowed, the interest rate on the loan can run between 27% and 60%. This means the monthly payment is higher than the amount borrowed.
If possible, avoid taking out a lawsuit loan. It can save you a lot of money in the long run. You can also borrow from other sources, such as insurance proceeds or disability payments. If you have a home and a 401(k) account, this type of loan is probably not a good idea. You could end up losing your house to foreclosure if you can’t pay back the loan as agreed.
Only Some Cases Will Qualify for a Lawsuit Loan
Since the loan amount is typically based on the outcome of the lawsuit, the lender only approves applications that are guaranteed to win. Generally, if the outcome of the lawsuit is not favorable, the loan will be declined.
Due to the number of companies that offer lawsuit loans, plaintiffs usually have to go through several companies like JG Wentworth to find one that’s interested in funding their case. You can read more about how JG Wentworth works and their fees here: https://www.cashinyourannuity.com/how-j-g-wentworth-fees-work/
How Are Borrowers Protected by Government Regulations?
The federal and state governments try to prevent people from getting into bad credit by regulating various types of consumer loans. These include student loans, credit card applications and car loans.
Consumer credit is often regulated by controlling how a lender discloses loan terms, by limiting the interest lenders can charge and by setting interest rate limits. States can impose penalties for lenders that charge borrowers unreasonably high rates.
Loan Term Disclosures
The federal government also requires banks and other financial institutions to disclose the terms of a loan. These regulations apply to all types of loans and include the interest rate, monthly payment and other fees that are included in the loan.
Regulations help consumers make informed decisions when it comes to applying for a loan. Unlike other types of loans, lawsuit loans are not subject to the same regulations as other types of lending options.
According to the funding industry, a lawsuit loan is not a traditional loan because it’s not subject to the traditional terms and conditions. Instead, it’s a transaction made using a portion of the settlement or verdict proceeds.
Finding A Reputable Lender
Without proper regulation, it’s difficult to know which companies are operating in the lawsuit loan industry fairly. If you’re dissatisfied with the service provided by a particular company, you might want to consider getting a list of their best practices.
Due to the lack of consumer protections, it’s important to carefully consider the terms of a lawsuit loan before applying. Be sure it is a wise financial decision based on your personal circumstances.