Is a Personal Injury Presettlement Loan a Good Idea? Pros, Cons, and Things to Consider
Personal injury lawsuits can take time to reach a fair settlement, but what happens to victims in the meantime? An injured person's bank account can take a serious hit between medical bills, lost income, and other out-of-pocket expenses. Although compensation paid by the insurance company should eventually help, not everyone can wait that long.
That is why people look into taking out loans in the interim. One type of loan to consider is pre-settlement funding- but what is it, and is it a good idea?
What Is a Pre-Settlement Loan?
In short, a pre-settlement loan is a cash advance on a personal injury case while waiting for a settlement. Rather than apply for a traditional loan, victims can contact lawsuit funding companies to request a pre-settlement loan based on the amount of compensation they are expected to receive.
Although the specifics vary depending on the case and the funding company, pre-settlement loans tend to be risk-free- meaning the injured person does not have to pay back the lending company if they do not win their legal claim.
Interest rates apply, but no monthly payments are expected until the lawsuit settles and compensation is received. At that point, the advance money (plus interest gathered) is paid back directly out of the settlement.
What Are the Benefits of Pre-Settlement Funding?
There are several reasons why people consider pre-settlement loans and believe they are a good idea. Here are some of the benefits of a pre-settlement advance.
Financial Relief in a Difficult Time
Between medical expenses, legal fees, hospital bills, and all the other costs that come with personal injury lawsuits, victims can quickly get bowled over and face significant financial stress. One or more unexpected expenses can be enough to push someone into active bankruptcy while they await an outcome.
Pre-settlement funding relieves financial hardship, allowing people to pay back at least some of their bills without being left in an even more difficult situation.
Alternative Source of Income when Unable to Work
On top of the expenses, many injury cases leave people unable to work and earn income. Living expenses don't stop just because someone is in an accident. Rent, mortgage, tuition, and utilities all still need to be paid, and pre-settlement funding can provide the financial assistance people need to stay afloat.
Less Pressure to Settle Quickly for a Lower Amount
Many plaintiffs simply can't afford to hold out for a higher settlement- even if they know they deserve it. Insurance companies use the legal process to their advantage to try and pressure victims into accepting less than they should just to get it over with.
Sadly, many accident victims run out of money, and their case settles with a far from sufficient compensation amount. With good legal counsel and pre-settlement funding, that doesn't need to happen. Having help in the form of cash advances from pre-settlement loan specialists tides victims over while they wait for a reasonable settlement offer.
Less Risk than a Bank Loan
Why not just go for a bank loan? Put simply, victims who borrow money from banks put themselves in a very precarious position. If they lose their case, they still need to pay back borrowed money and meet monthly interest payments on top of all their other expenses. It is not a risk worth taking.
With pre-settlement loans, there is no need to pay back the loan if the case is lost. The funding company carries the risk so that victims don't have to.
What Are the Possible Downsides of Pre-Settlement Funding?
Despite the many benefits, some people do not believe obtaining pre-settlement funding is a good idea. Here is why.
Approval is Not Guaranteed
First of all, there is no guarantee that an application for a pre-settlement loan will be approved. There is quite a bit of extra paperwork involved in the application process, and waiting for the funds just to have them denied can put unnecessary added stress and anxiety on injury victims.
The Costs Can Add Up
Pre-settlement funding companies take major risks when providing loans with no guarantee of getting the money back. There is usually no collateral, meaning they lose their investment if a victim does not win a settlement. To make up for that risk and cover losses, they generally charge high-interest rates.
Exact numbers vary, but most companies charge compounding interest. This means there are no monthly payments, but all interest is paid together along with the original loan amount when a settlement is received. If a case takes a long time to settle, people can end up paying double the loan.
Legal Assistance is Required
It is not advisable to see pre-settlement lawsuit funding without the support of a lawyer. Although most funding companies are honest and upfront, there are some significant differences in contracts and costs.
Sadly, there are some dishonest companies that take advantage of victims and provide loans that only create more financial strain long term.
How to Choose the Best Pre-Settlement Funding Company
A pre-settlement loan is generally safe as long as it is taken out through a reputable funding company. There are a few things to look out for and steps to take when choosing a loan provider.
Ask for full details of the loan contract and look through it with a personal injury lawyer.
Make sure it is a no-win, no-repayment loan (non-recourse).
Check for any hidden fees, including application fees, admin fees, and processing fees. These are not necessary, and plenty of companies provide pre-settlement funds without them.
Look into the specifics of the interest charges. Are they calculated monthly or annually, when are they paid, and is there a cap on the total amount of interest the loan applicant will pay?
Inquire about roughly how much the company tends to award in loans. Although they may not be able to provide an exact figure, they could provide a ballpark to compare with others.
In short, a pre-settlement loan can be a good idea depending on the circumstances. It is a better choice than going through a bank, especially when considering that it is completely risk-free if the applicant doesn't win their case.
Personal injury claims can be complex, especially personal injury cases involving children and the medical bills and other expenses can quickly become overwhelming. Pre-settlement funding can help take some of the pressure away, but it is always advisable to speak to a lawyer beforehand.
Schuerger Shunnarah Trial Attorneys go to war for Indy injury victims and can assist in obtaining pre-settlement funding for those who need it. They will provide details for proving fault in personal injury accidents.
Pre-Settlement Loans: Frequently Asked Questions
Here are some of the most commonly asked questions regarding pre-settlement funding and why it is a good idea.
Can Anyone Get Approved for Pre-Settlement Lawsuit Funding?
No, pre-settlement funding is not automatically available to anyone who wants it, and an application must be submitted. There is a high-risk element involved for pre-settlement funding companies, so they will only pay when they are confident the pending lawsuit will result in a win.
Ambiguous or uncertain cases are unlikely to secure any sort of pre-litigation funding. If, however, a person has sustained an injury, it was someone else's fault, and they have suffered damages because of it, there is a good chance they can qualify for pre-settlement funds.
How Much Interest Will Pre-Settlement Funding Companies Charge?
The interest rate on a pre-settlement loan depends on the company. Some charge much more than others, but they all generally fall between 1.99% and 3.99% each month or 30-60% annually. Depending on the contract, the total interest may be capped at a maximum of 200% of the initial loan amount.
It is best to speak to an injury attorney in Indianapolis before signing an agreement to go over the terms and find out roughly how much the loan recipient will owe on top of the original borrowed sum.
What Percentage of the Expected Settlement can People Expect to Receive in a Pre-Settlement Lawsuit Loan?
Some people mistakenly believe pre-settlement funding is equal to the projected settlement amount. That is not the case. Unfortunately, pre-settlement loan companies will not pay out the entire amount of the expected settlement. In most cases, applicants can expect to receive no more than 20% of what they are likely to receive if they win their personal injury lawsuit.
Does a Lawsuit Funding Company Usually Request a Credit Check?
One of the good things about pre-settlement lawsuit loans over traditional loans is the fact that the applicant's credit history is not taken into account. A credit check is required to ensure a person has enough regular income to repay loans over time. Since the settlement from the personal injury claim is expected to cover the amount in full, it is not necessary.