Personal injury loans are a convenient way to access money when you cannot afford to pay for the damages after an incident. When considering litigation funding, you should explore how it can benefit you and what its pitfalls may be. You have to decide whether it is a good idea to take a loan out and use your settlement to pay for it or if it is an expensive risk.
Pros and Cons of Personal Injury Loans
Lawsuit funding is a great cash advance for you to cover bills during a time when you have insufficient funds. However, it is not always a smart decision to make.
What is a Personal Injury Loan?
When you experience a personal injury, it can result in damages that are far beyond your typical expenses. This can include medical bills, income loss, property damage, and other ongoing costs that were the result of your injury. A lawsuit cash advance can help reduce some of your financial burdens. This is useful for when you are waiting on a settlement but your case is still pending.
Advantages of Personal Injury Loans
There are a number of reasons that personal injury loans can be beneficial. It makes settlements more flexible and can sustain you financially.
Lawsuit Loans Provide Financial Stability
After a personal injury, you may have to take time off from work over the long term and may suffer a large amount of wage loss. You may have injuries that require medical treatment, medicine, physical therapy, and other treatments which are ongoing. This can create great financial strain and prevent you from living a normal life. With all of these burdens piling up, you can use the loan to keep you afloat until your case settles. This will help make your life relatively normal and allow you to focus on healing from your wounds rather than stressed and miserable.
Lawsuit Loans Extends Time for a Good Settlement Negotiation
Your personal injury attorney will be negotiating a settlement award on your behalf with the other parties. However, it may take some time as each party has to agree to the terms of the proposal. Because of this, it may take months to a year or more for your case to come to a close. If you are pressed for money, you may try to settle too soon. This results in a lower settlement as you have less time to go through with a lengthy negotiation. However, if you are financially stable, the negotiation process can continue unhampered by financial distress.
Loans Are Non-Repayable Depending on Outcome
Personal injury lawsuit loans do not require you to pay them back if you lose. Additionally, if you win a lower settlement amount than what was anticipated, you may be allowed to pay back less. The entire loan amount will be adjusted according to the amount of settlement you receive.
The Government Protects Personal Injury Loan Borrowers
There are a lot of scammers who provide fraudulent loans and rip-off borrowers. Unreasonably high interest rates are not allowed. To protect you from this, the government limits how much interest a lender can charge. Loan terms have to be specific. They must include information and specify how much interest rate it is, what the penalties are for late payments, and other details. These disclosures help you to make an informed decision.
Disadvantages of Personal Injury Loans
These loans are not always the solution. You don’t want to obtain a loan that is more of a burden than it is a blessing.
They Have High-Interest Rates
Unfortunately, personal injury loans are expensive. The loan is made up of the principal and a funding fee. The funding fee is typically just the interest payment. However, this interest payment can result in the total cost being double to triple the amount you would pay for the principle as time passes. Interest is compounded monthly, making the price on the loan rise rapidly. Personal injury cases can extend past a year. If the negotiation does not come to a close, you will have to go to court.
As you know, when you win your case, you have to pay back the personal injury loan. Even with a large settlement, the total interest rate may take a huge portion of your compensation away. The interest rates of these loans are usually between 20% to 60% and are on average 44%.
You Might Not Qualify
Most lending companies will do an investigation to see if you are eligible. If you pose a substantial risk, they will refrain from giving you the loan. They will only lend it to you if they are entirely sure that you will settle your case. They have to make sure you are definitely being paid, especially because you don’t have to cover the loan if you lose. Lawsuit lenders are also very selective. You will have to apply to between five to six companies before one shows it is interested in supporting your case.
They Are Not Deeply Regulated
A lot of the personal injury loans are not completely controlled by the government. There are some measurements in place, but the lenders do things at their own discretion. You also have to do your research, as some of them turn out to be scams.
Other Alternatives to Personal Injury Loans
If you dislike the idea of borrowing a loan, you can consider borrowing against the equity on your house, taking money out of your 401(k), or asking your bank for an installment loan. These are all other options that may be far less expensive for you in the short term, as the insurance rates on these loans are pricy. This is also a good idea if you think you will win your settlement case for certain.
Find Out if a Personal Injury Loan is Right for You
You can find out if a personal injury loan is a solution that fits your circumstances by talking to a professional who knows best. Speak with a personal injury attorney to learn more about the process.