Over 40 million lawsuits get filed in United States courts every year. Many of these cases take months if not years to resolve.
If you’re the victim of an accident or are the plaintiff in a class-action lawsuit, waiting years to get your settlement money can create big problems. This is especially true if the incident that you experienced is keeping you from working.
To help remedy this issue, many turn to a pre-settlement loan, settlement loan, or lawsuit loan which are varying names of the same product.
If you’re considering taking out a settlement loan but aren’t sure if one is right for you, keep reading. Our team will brief you on this loan’s uses, qualities, and alternatives.
Who Is a Settlement Loan Useful To?
Generally speaking, settlement loans can be leveraged by anybody that’s waiting for a court settlement to pay them money. More specifically, common classes of people that take on settlement loans include:
Personal Injury Victims
If you’re in an accident, it can take a long time for an insurance company to pay you what you’re owed. Given that most injury victims can’t or won’t work while they’re negotiating their claims, a settlement loan can be helpful to pay off expenses.
Class-Action Lawsuit Plaintiffs
Class-action lawsuits are notoriously arduous. If you’re holding out for payment associated with a class-action suit, rather than waiting years for compensation, a settlement loan can fill in the gaps.
Those Awaiting an Inheritance
When a deceased loved one passes away, it can be a while before attorneys sort through their estate. This is especially true if a will was not put in place.
Settlement loans can give you an advance on your inheritance if you must get your hands on it sooner than the courts will allow.
What Are the Advantages to Settlement Loans?
As you’ve probably realized, settlement loans do carry advantages which is why they’ve become a fixture in the legal community. The two most key advantages of this loan are:
The Ability to Survive During a Legal Proceeding
We’ve discussed how settlement loans can be valuable to people that are sitting through long trials. For many, due to their inability to work, settlement loans are a necessity to live.
More Leverage During a Negotiation
Many insurance providers and other defendants in cases intentionally drag legal proceedings out to try and “starve out” plaintiffs. After all, if a plaintiff is running out of money amidst a negotiation, they’ll be more likely to ask their lawyer to settle.
A settlement loan gives plaintiffs more runway to properly negotiate what they’re owed which can have a substantial positive effect on how much money they’re able to walk away with.
Are There Disadvantages to Taking Out a Settlement Loan?
Settlement loans don’t have a sparkling reputation for several reasons. As a matter of fact, many financial advisors might staunchly advise against taking them out due to their two major drawbacks:
Extremely High Interest Rates
The lenders that give our settlement loans are not in the business of being altruistic towards victims that need money to survive a trial. They’re in the business of taking advantage of a victim’s desperation.
Consequently, settlement loans will carry higher interest rates than is commonly seen in more run-of-the-mill loan products.
In fairness, settlement lenders rely on borrowers getting a favorable case verdict to receive their money back. Since there are no guarantees in this matter, higher interest rates insulate lenders from sustaining too much damage if borrowers lose and have to declare bankruptcy against their debt.
Lack of Regulation
A settlement loan is a relatively new loan product in the world of finance. Because of that, the product is largely unregulated.
This lack of regulation has led to cases where lenders have been able to dump exorbitant interest, fees and several other stressors on borrowers that would not be acceptable with other kinds of loans.
Only do business with the absolute best pre-settlement funding companies. If you take a risk on an operation that’s not worth trusting, you stand a serious chance of getting into financial trouble.
Settlement Loan Alternatives
Settlement loans may not be your only option for sustaining yourself during a trial. Here are a few safer alternatives that are worth considering:
A Family/Friend Loan
If you have family members or friends that can help you wait out your trial, ask them for help. They’re among the few lenders in the world that may not charge you anything for their assistance.
Just be wary of the fact that borrowing money from people that you know can complicate your relationship.
Depending on the nature of your lawsuit/condition, you may qualify for government disability payments. Talk to your lawyer about your options on this front to ensure that taking disability payments won’t undermine your case.
Homeowners may be able to borrow against the equity that they’ve built up in their houses. Just make sure that you’ll be able to keep up with your payments since falling behind could result in losing your house.
Is a Settlement Loan Right for You?
At this point, you have enough information to make a better decision on whether or not a settlement loan is right for you. We wish you the best as you navigate that financial question and the settlement that you’re working towards.
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