Lawsuit Loans & Cash Advances: Advantages & Disadvantages

Posted on: 26 March 2015

You're considering hiring a personal injury attorney because you believe the settlement offer you've received is unreasonable. In the meantime, bills are piling up because you haven't gone back to work yet. The main problem with fighting for a better settlement is having to wait for the money, whereas right now, you could just accept the offer and receive a check. What about lawsuit loans and lawsuit cash advances? Are those sensible options?

Lawsuit Loans & Cash Advances

These financial tools are essentially the same thing: a cash advance against your future settlement. You would receive a small percentage of the expected settlement as a loan, such as 10 percent.

You'll need to contract with a personal injury lawyer to qualify, as the loan company wants assurance that it will get its money back. Since injury lawyers are only paid with a percentage of the settlement or court award, they typically only take cases they are sure they can win. Lawsuit loan companies operate in a similar way, only receiving loan repayment from your settlement.

The Advantage of These Financial Tools

You need money now, but your case may not be settled for months. In the unlikely event that the case goes to trial, you may not receive a settlement or court award for more than a year. Preparing for trial is a lengthy process, and the insurance company will probably use delay tactics in an effort to get you to settle.  

With a lawsuit advance, you'll receive money quickly that you can use to catch up on bills and other expenses. You won't have to get into serious financial trouble by using credit cards for living expenses, face eviction or foreclosure, or feel forced to file for bankruptcy.

Medical bills alone may be overwhelming if you don't have health insurance or if you have a high deductible and co-pay. Medical expenses are the most common reason for bankruptcy filings in the United States. 

Reasons to Avoid Lawsuit Loans & Advances

Personal injury lawyers often steer their clients away from these financial products because of privacy issues. The lawyer must release details of your case to the loan company so that organization can do its underwriting and decide whether to offer you a loan. You and your lawyer now have no control over what the lending institution does with this information.

The loan will be relatively small. If your lawyer expects you to receive a $20,000 settlement, for instance, you might only get a $2,000 loan. If that money doesn't get your head above water financially and only delays the inevitable, it may be pointless. You might not receive your settlement for several months, and you may still get evicted or have bills go to collections even with that loan. 

Interest rates are often high for these loans as well. You could easily have to pay double the borrowed amount, depending on how long it takes to receive your settlement. With a $20,000 settlement, you'd pay your attorney about $6,600, as injury lawyers typically charge one-third of the settlement for their fee. Your loan repayment amount could be $3,000 or even $4,000.

What if your original settlement offer was $7,000 and you hired an attorney to essentially double your compensation after contingency fees? With a $4,000 loan repayment, your compensation now drops to about $9,400 -- not enormously higher than the original offer, especially since you had to wait so long to receive it. 

Consult a Personal Injury Lawyer

Schedule a free consultation at a firm like Dunnigan & Messier P.C. to explain your circumstances to a personal injury lawyer or two. Learn whether the lawyer has a good estimate of how long cases like yours take to settle and what he or she thinks your case is worth. Ask the attorney's opinion on lawsuit loans and cash advances. When you have all this information, you'll be able to make a smart decision that's right for you.