Lawsuit settlement loans are an obscure financial option for most people. Because most of us aren't involved in lawsuits on a regular basis, we don't often have to decide if getting a lawsuit settlement loan is the right thing to do or not. The truth is, in my years of helping people make this decision, all of their confusion boils down to a few unanswered questions:
What is a lawsuit settlement loan?
A lawsuit settlement loan is a "non-recourse loan". "Non-recourse" simply means that the lender doesn't have the right to collect the money if the case doesn't settle-for example, if you got a $10,000 lawsuit settlement loan and you lost your case, you wouldn't owe anything. This is the way a lawsuit settlement loan has to work under Federal law.
How high are the interest rates on lawsuit settlement loans?
The interest rates on these loans range anywhere between 1% to 5% monthly. A fair interest rate for a personal injury lawsuit settlement would be around 2.5% to 3.5%. A fair interest rate for a structured settlement case would be around 1% to 1.5%. For riskier cases, expect interest rates bordering on 5%. Be careful of deceptive math with most companies! Some companies may try to scam you by making you believe a "grid-structure repayment plan" is the way to go. With these repayment plans, you may end up repaying 60% interest if your case settles any time within six months. So, if your lawsuit settlement arrived after two months you would have ended up paying 30% of the loan per month.
What if I lose my case?
Because lawsuit settlement loans are non-recourse loans disbursed based on your pending settlement, if yours never comes because you lost your case, then you wouldn't owe anything.
What if the settlement is less than the loan amount?
If the settlement is less than the loan amount, you still do not owe more than the settlement. Basically, you will not leave the deal with personal debt from the non-recourse loan.
How do I calculate if a lawsuit settlement loan is the right thing to do?
Let's look at an example. For simplicity, let's say you are expecting $100,000 but it was going to take one year for you to get that settlement. Let's say you have been out of work for a couple months, but you would be able to get back to work soon. The defendant's insurance company knows you are probably desperate (as most are) and offers you a bogus $10,000. Out of desperation, you are very close to taking their offer. But then you discover a litigation finance company could give you a lawsuit settlement loan of $10,000 at 3% interest per month. This satisfies current financial demands by paying back-rent, catching up on car payments and providing food for your family until you can get back to work. By the end of the year, you get the $100,000 settlement. Of course, about $33,000 goes to the lawyer in attorney fees, and $13,448.89 goes to the litigation finance company (the $10,000 loan plus $3,448.89-3% interest compounded per month for twelve months). By taking the loan instead of the bogus settlement, you would have been able to wait a year for the full amount that was due to you and get $63,551.11 after attorney fees and interest (compare that to the $10,000 bogus offer you could have ended up accepting because you didn't know your options!).
Should I go through a broker for my lawsuit settlement loan?
By using a lawsuit settlement loan broker, you can get your loan from the right underwriter for your specific case and for your needs and wants. For example, if you have a worker's comp case in Connecticut, some underwriters may reject you, some may charge you unfair interest rates, but only a few would be happy to take your business and charge you a fair interest rate. The same goes for a personal injury lawsuit in Florida-different companies will make different offers. Some will give you an approval within a couple hours, but by accepting that quick approval you may end up getting a lot less than you could (and probably at a higher interest rate). Other underwriters will take a few days to fully review your case and give you a loan for a lot more (and at a lower rate). After years of experience as lawsuit financing brokers, we know which underwriters will give you the best deal for your specific case and for your needs and wants.
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