The advantages and disadvantages of litigation loans

The lack of government regulation and oversight of the litigation loan industry means you need to be extra careful and take the time to compare litigation loans from different companies.


Time passes from the filing of a lawsuit by a plaintiff to the award of damages either through a negotiated settlement or a judgment after the negotiation. This delay often leads to financial hardship, especially in the case of personal injury such as motorcycle accidents or other serious accidents. The injuries can be so severe that claimants miss time from work during medical treatment and rehabilitation.

The bills from doctors and hospitals for treatment of your injuries add to the pressure to raise money to put food on the table, pay rent, or not default on your mortgage. Too often plaintiffs give in to financial pressures by forcing their lawyers to settle for far less than the true value of their claim.

However, there is an option to get enough cash to cover living expenses and other bills without putting your lawsuit at risk. Litigation loans allow you to receive an immediate cash advance based on the value of the expected settlement or judgment of your pending litigation.

Litigation loans can be the solution to the financial challenges faced by claimants awaiting settlement of claims for damages. Before deciding to apply for a cash advance, it is important that you understand how a litigation loan works and the advantages and disadvantages associated with it.

What is a litigation loan?

Companies that offer litigation loans agree to provide you with a cash advance based on their assessment of the likelihood that a pending litigation will result in a settlement or judgment in the plaintiff’s favor. The cash advance represents part of what a plaintiff estimates will receive corporate funding from the lawsuit.

The business of providing a cash advance against the settlement or judgment in a lawsuit has several names in addition to litigation loans, including:

  • Litigation funding.
  • Sue Cash Advance.
  • Settlement financing.
  • Funding in advance.
  • Litigation funding.

Regardless of the name, the company advancing money from you agrees to be repaid from the settlement or judgment you eventually receive in the case. Companies that offer litigation loans charge interest and fees to reimburse them for their services.

How does a company decide whether to qualify for a litigation loan?

The use of the term “credit” in connection with litigation funding can be misleading. It is not really a loan in the sense of a lender that will grant it to you based on your credit history and expect regular payments from you until it is repaid.

Firms that offer litigation funding do so based solely on your case. Your creditworthiness, creditworthiness, and other debts that you may have to pay do not play a role in the decision-making process. If that sounds too good to be true, remember that you have no personal obligation to repay a litigation loan, as the agreement with the company provides for a repayment of the advance with interest and fees from the settlement or judgment in your lawsuit .

With the approval of a cash advance, the litigation financing company declares that it is ready to accept the damage caused by an unfavorable outcome of the legal dispute or by a loss of the full amount of the damages owed. He undertakes to assume the risk in exchange for the high interest rate should the outcome of the proceedings turn out as expected.

Advantages of litigation funding

Image by Daniela Santos, via Unsplash.com.

While any type of legal proceeding in which a successful plaintiff receives monetary damages may be eligible for litigation funding, in personal injury cases plaintiffs may have the greatest need because they are unable to work due to their injuries. Advantages of litigation loans include the following:

  • Instant access to cash to pay bills: No matter how severe your claim for damages, it can take too long to reach an agreement or take the case to court if you can’t work and default on payments. Litigation finance gives you quick access to cash to pay for household expenses while you wait for the case to be settled.
  • Gives your attorney time to work towards a fair settlement: A common tactic used by insurance companies is to take advantage of financial pressure to force a plaintiff to accept a settlement that’s worth less than a case is worth. Settlement financing relieves the financial pressure and gives you and your attorney time to either continue negotiating with the insurance company or take the case to court.
  • Freedom of recourse for litigation financing: By using a litigation financing company that does not hold you personally responsible for the repayment of the cash advance, there is no risk for you in the event of an unfavorable outcome of the litigation. It is important for your attorney to review the terms of the suit loan to ensure that the terms include non-recourse language that relieves you of your personal responsibility.

As good as the benefits of litigation funding may seem, don’t make rash decisions before weighing the disadvantages.

Disadvantages of litigation loans

The cost can be the biggest downside to litigation funding if you don’t carefully weigh it against the benefits it offers you. The company that finances the cash advance charges interest on the money well above what you can pay for a typical bank loan, but your bank expects you to repay it while the company that offers a lawsuit loan only charges on it The settlement or judgment looks as a source of repayment.

Another disadvantage of litigation funding is that companies are very careful when evaluating and therefore do not accept all lawsuits. Only cases with a high probability of a settlement or judgment in favor of the plaintiff will be admitted to litigation funding.

Avoid making hasty decisions about litigation loans

The lack of government regulation and oversight over the litigation loan industry means you need to be extra careful and take your time to look around Compare litigation loans from different companies before deciding to apply. Also, be sure to involve your attorney in the decision-making process to make sure you understand the terms and costs of litigation funding.

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About Natalee Broderick

Natalee Broderick

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