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If you have ever watched daytime television, you’ve probably seen an advertisement for “lawsuit loans.” The pitch is that if you have a work injury, car accident or other case where you’ll be getting money someday, they can give you some of that money now.
In theory it sounds great. Many people have financial trouble even before an accident. Getting hurt at work or elsewhere can create additional and very real financial hardships. This is especially true if your benefits are late or cut off or if you can’t work overtime anymore. So I get why people get intrigued by the possibility of a settlement loan.
The way these loans work is that you contact them, they learn about your case, they typically want to speak with your lawyer and then they make an offer to you. What sounds great about these loans is that if you don’t win your case, you don’t have to pay them back. And they can get you your money within 24-48 hours. It almost seems to good to be true.
The reality is that they will never make a loan offer on a case where you aren’t expected to get a settlement of victory at trial. In fact, they almost always get paid back for this reason. So the risk to them is rather low and the upside is really high. I say that because most of these companies charge really high interest rates. And if they give you the loan in 2023 and the case doesn’t settle until 2026, the $10,000 you borrow today could be $40,000 when it’s time to pay back.
In other words, if they give you 10k today, if you settle the case for $100,000.00 in 2026, after lawyer fees of $20,000.00, you’d only get an additional $40,000.00 instead of $80,000.00. That’s a huge difference.
Most of the loan companies I’ve seen won’t give super large loans, but with interest rates so high it ends up feeling like it. And if the case that everyone thought would settle for 100k ends up settling for 50k, you essentially end up with nothing.
I haven’t met a lawsuit loan company that I find appealing and as a result, whenever someone tells me they want to get a loan against their settlement, I try to talk them out of it. If you absolutely have to do it, I’d suggest two things:
1. Talk to your attorney to see if there is any way the insurance company would pay an advance against your settlement. That is rare, but if your benefits are cut off while an IME is pending, it can happen. And if it does it costs you nothing and there is nothing to pay back.
2. If you have to take a loan because if you don’t you’ll get evicted or something else extreme will happen, keep it as low as possible and avoid doing it again.
I’d also encourage you that if a lawyer is telling you how great these loans are, it’s a red flag. Unless they’ve found one that has a really low interest rate, it wouldn’t surprise me if they had some sort of conflict of interest. In one instance, a lawyer in Chicago was referred for ethical sanctions because he was referring clients who needed money to his Dad. Others I suspect get kickbacks of some sort whether it’s direct financial compensation or referrals of potential clients who aren’t represented.
I get that this can be tough and confusing. If you want to talk about it for free, please contact us anytime.
