Lawsuit Loans: Should You Get One?

Lawsuit loans, also known as legal funding or pre-settlement funding, have become increasingly popular among plaintiffs waiting for a case to resolve. These financial tools offer upfront cash in exchange for a portion of your future settlement. While they may sound appealing, especially when you’re struggling to make ends meet, lawsuit loans come with significant risks and costs. This article will help you understand how they work and whether getting one is the right choice for your situation.

What Are Lawsuit Loans?

A lawsuit loan is a cash advance provided to plaintiffs who are in the middle of a personal injury or other civil lawsuit. Unlike traditional loans, these advances are non-recourse. That means if you lose your case, you don’t have to repay the lender. Instead, repayment only occurs if you win or settle the case, and the money comes directly out of your settlement.

Lawsuit loans are commonly used in cases involving:

• Personal injury
• Medical malpractice
• Workers’ compensation
• Product liability
• Wrongful death

How Do They Work?

Here’s how the process usually works:

1. Application: You apply for funding through a lawsuit loan company. They review the details of your case, often speaking directly with your attorney.
2. Approval: If they believe your case is likely to succeed or settle for a significant amount, they’ll offer you an advance.
3. Agreement: You and your attorney sign a contract agreeing to the terms, including repayment amounts, fees, and interest.
4. Disbursement: You receive the money, often within a few days.
5. Repayment: If and when your case settles or you win a judgment, the lender is repaid out of the proceeds.

Pros of Lawsuit Loans

1. Immediate Financial Relief

If you’re unable to work or facing mounting bills due to your injury, a lawsuit loan can help you cover rent, groceries, utilities, and medical expenses while you wait for a settlement.

2. No Repayment if You Lose

Because these loans are non-recourse, you won’t be held personally liable if you lose your case. That provides a safety net not found with traditional loans.

3. Leveling the Playing Field

Insurance companies often pressure plaintiffs into accepting lowball settlements because they know financial strain can lead to desperation. A lawsuit loan may buy you time to negotiate a fair deal.

Cons of Lawsuit Loans

1. Extremely High Interest Rates

Interest rates on lawsuit loans can be shockingly high — sometimes exceeding 40% annually. The longer your case drags on, the more you’ll owe. This means a $5,000 loan could cost $10,000 or more in repayment.

2. Lack of Regulation

Lawsuit lending is loosely regulated in many states. Unlike banks and credit unions, legal funding companies aren’t always held to strict consumer protection laws, which can lead to predatory practices.

3. Reduced Settlement Payout

The more you borrow, the less you’ll take home from your settlement. After legal fees, medical bills, and loan repayment, you might find your compensation significantly reduced.

4. Complicated Contracts

Some loan agreements contain confusing terms or fees that aren’t clearly disclosed. Without careful review (ideally with your attorney), you could end up agreeing to unfavorable terms.

Questions to Ask Before Getting a Lawsuit Loan

If you’re considering a lawsuit loan, ask yourself (and the lender) the following:

• What is the total repayment amount if my case takes 6 months? 12 months? 24 months?
• What fees are charged besides interest?
• Is the loan non-recourse?
• Can I borrow a smaller amount to limit what I owe later?
• What happens if my settlement is smaller than expected?

Also, be sure to discuss the decision with your attorney. They can help assess whether your case is strong enough to support a loan and ensure you don’t borrow more than necessary.

Alternatives to Lawsuit Loans

Before committing to legal funding, consider other options:

• Personal Loans: If you have good credit, a personal loan from a bank or credit union may offer better terms.
• Family and Friends: Borrowing from someone you trust can be cheaper — or interest-free — but comes with its own risks.
• Attorney Advances: Some law firms may front certain costs, though they cannot legally lend you money directly in many jurisdictions.
• Payment Plans: If you’re struggling with medical bills or rent, negotiate a payment plan with providers or landlords.

When a Lawsuit Loan Might Make Sense

There are scenarios where legal funding can be a smart choice:

• You have no other financial support.
• You’re at risk of eviction, utility shutoffs, or default.
• You need leverage to avoid settling prematurely.
• Your case is strong and expected to settle soon.

Even then, it’s crucial to borrow as little as possible and to compare offers from multiple funding companies.

Final Verdict: Should You Get One?

A lawsuit loan should be a last resort, not a first option. While it can provide temporary relief during a difficult time, the long-term cost is often high. If you must use legal funding, be cautious, consult your attorney, and read the contract thoroughly.

Lawsuit loans can be helpful — but only if you understand the risks and proceed carefully.