If you have been injured due to the negligence of others, you can file a personal injury claim to cover the medical costs, lost wages, property damage, pain and suffering, and other losses that you have incurred. As you deal with the financial losses from your injury, you may be considering a personal injury loan, also known as a lawsuit loan or pre-settlement loan. While these loans may have some advantages, they present significant drawbacks as well. Here’s a closer look at the details of these loans.
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What is a personal injury loan?
With a personal injury loan, a financing company gives you a cash advance. By doing this, they purchase the rights to all or a portion of your final lawsuit award. (Note that loans cannot be provided by the law firm representing the client.)
Will I have to pay my loan back if I lose my case?
No. You are not responsible for paying back your loan if you do not win the case. Also, if you win less than the funding company anticipated, you won’t have to pay the entire loan amount back. This is why lawsuit loan companies are very choosy about the cases that they accept. If they don’t think that you will win your case, they probably won’t be willing to lend to you. If you do win, though, you could end up having to repay a substantial share or even all of your award.
What kind of interest do these lenders charge?
Lawsuit lending is a relatively new industry and is not regulated to the same degree as other types of lending, like car and home. Thus, lawsuit loan companies may charge sky high interest rates that may reach up to 60 percent. When you consider that some personal injury cases take years to resolve, interest can become very costly. For example, if someone were to borrow $10,000 at 60 percent interest for two years, they would have to repay $17,393. Fortunately, you will not be required to pay more than the amount of your lawsuit award, but for a lengthy case, you may have to pay out your entire settlement amount to the lending company.
If interest rates are so high, why do people take out personal injury loans?
Accident injuries can lead to mounting medical bills and also leave people unable to work. Victims may soon find themselves struggling to make their house or car payments. In these cases, they may reach out to lending companies to help them survive until their case is resolved. Some people are tempted to take out loans for vacations or to “splurge” on a purchase, but this should be avoided at all costs. Money should only be used for covering necessities.
Are there alternatives to personal injury loans?
You can save yourself a great deal of money in the long run if you can avoid high-interest lawsuit loans. You may be able to get disability compensation or reach out to family members for financial help until your claim is resolved. A local bank or credit union may even be willing to give you an installment loan with far lower interest rates than you would incur with a lawsuit loan.
Many people have been burned by personal injury loans, so proceed cautiously before you apply. Explore all other options before saddling yourself with the often crushing interest rates of lawsuit loans.