The pros and cons of legal loans
The court lending industry lends plaintiffs over $ 100 million annually in the United States, but at what cost to the injured and their loved ones?
This type of funding is also known as legal cash advance, lawsuit funding, settlement funding, and pre-settlement funding. No matter what you call it, having the ability to take out a cash advance against a pending settlement has helped thousands of people cover their costs during the litigation process. That doesn’t mean it’s risk free.
Legal loans are usually funded by hedge funds, private investors, or banks that are willing to lend money to plaintiffs with the promise of a significant return on their investment. Critics of loans in court have pointed out that the legal standards that other types of lenders are required to not apply to this type of loan, as it is largely unregulated in most states.
The plaintiff lending business has sprung up over the past decade, as part of a trend in which banks, hedge funds and private investors invest money in the lawsuits of others. But the industry, which now lends plaintiffs more than $ 100 million a year, remains unregulated in most states, free to ignore laws that protect people who borrow from most other types of lenders.
Why do people take out loans for lawsuits?
According to a survey carried out in 2019 by Charles Schwab, 59% of Americans are one paycheck away from roaming. This situation has certainly not improved now that the country has been in the grip of a pandemic for a year. Many people are already struggling to make ends meet, and an accident could quickly put the average person in dire financial straits.
When someone is injured in an accident caused by the negligence of another party, they may lose their ability to work, temporarily or permanently. It can quickly push a barely emerging family above the bottom line and into a never-ending cycle of overdue notices, collection appeals and eviction notices.
Before discussing whether or not the pros of a lawsuit are worth the cons, we need to consider that this is not just a theoretical discussion of whether certain types of loans are predatory in nature or whether or not there are any. enough regulation. The pros and cons of court loans must be weighed against the actual financial consequences that a particular plaintiff may face during their trial before a judgment can be rendered.
The advantages of legal loans
There are many benefits to taking advantage of pre-settlement financing, especially if you are an applicant who is in dire financial straits. The biggest of those perks, of course, is being able to have food in your fridge, working utilities, and a roof over your head while you’re out of work and struggling to get over it. an accident. But the benefits go beyond basic survival needs.
Insurance companies often pressure personal injury victims to settle for an unfair amount because they know they are in a bad situation and are looking for an immediate solution. They may delay the settlement process in the hope that the claimant will give in out of financial necessity. On top of that, personal injury lawyers may also feel pressured to cover their clients’ expenses during the claims process. It can be a huge expense.
One of the benefits of litigation loans that plaintiffs enjoy the most is certain types of financing, such as pre-settlement financing, you will not be required to repay the loans if your case fails to be resolved or fails. obtain a court decision. This, of course, is only a benefit if you are certain that the type of financing you purchase does not require repayment. It is essential that any applicant clearly understands the terms of the funding before signing an agreement.
The disadvantages of legal loans
The main disadvantage of court loans is the cost. While it is true that a lawyer may be able to get a much larger settlement if the plaintiff can afford to stay there throughout the negotiations, many accident victims and their families are still in shock. when the final invoice arrives.
This is only a disadvantage if you are not well informed about what the interest rate will be and what that number might look like in relation to your estimated settlement. It can also become a disadvantage if you take out a larger loan than you need. However, if you only take what is necessary and are realistic about what your settlement will look like after paying the interest, settlement funding can keep you afloat during this difficult time.
Another downside to court loans is the fact that you may not qualify, especially if the lender does not require you to repay the loan if your case fails. These lenders take a huge risk, so in order to qualify for settlement financing, your case must be likely to reach a favorable conclusion for the injured party.
What borrowers and their lawyers need to know
Legal loans can mean the difference between seeing justice done and being further victimized by insurance companies that put profits before human lives. They can also send a complainant in shock over the stickers and leave them feeling angry if they don’t do their homework and understand what they’re getting into before signing on the dotted line.
When looking for a lender, either for yourself or for a client, be sure to choose a legal loan provider who believes in full transparency throughout the process. If a lender isn’t working with you on a personal level to make sure that you clearly understand the terms of the loan, it’s best to take your business elsewhere.
So, are the pros of legal loans worth the cons? The answer is… it depends on the complainant’s situation. If you or your client can survive the trial without accepting funding, this is probably your best option for doing so. However, if you are struggling and there is no end in sight, you may find that the downsides of settlement funding are well worth the benefits.