When you’re injured in an accident, it can take a real toll on your financial state. Medical bills, time off work, and repairs can quickly add up, but court cases and settlement negotiations can take months (and in some cases, years) to resolve. This is why certain lenders offer lawsuit loans, to tide you over until your case is resolved. While these loans may benefit certain individuals, for most, they’re a bad deal.

What is a lawsuit loan?
A lawsuit loan is a loan that is offered to people going through the legal process who have a high likelihood of winning a substantial amount of money through a settlement or verdict. The loan is meant to be paid back when you win your case or settle, and the lender gets nothing if you lose. There are two problems with this method of lending:

  1. They are incredibly selective, meaning that some of the people that these loans would actually benefit aren’t approved for them, and
  2. Because of the high risk the lender is taking (not being reimbursed if you lose your case), the interest rates are often far higher than any traditional loan.

Exorbitant interest rates
The main drawback of lawsuit loans is the interest rates attached to them. It’s not uncommon for people who take out compounding lawsuit loans to end up paying back 2 or 3 times the amount of the loan. Lenders understand that these loans are incredibly high risk, and charge exorbitant interest rates to offset that risk.

Lawsuit loans are ethically questionable
Many states have ethical standards that prohibit lawyers from assisting their clients with lawsuit loans. While some allow lawyers to provide information to lawsuit lenders with the written consent of their clients, others do not even allow lawyers to have contact with lawsuit lenders, effectively barring lawsuit loans from the state.

Lack of regulation
Lawsuit loans have only been around since the 1980s, and are still relatively unregulated by the government. This means that lawsuit loans don’t have the same consumer protections included with them that other types of loans, like car loans and mortgages, do.

There are few restrictions on what lawsuit lenders can charge for their services and the interest rates attached to their loans. Lawsuit lenders don’t have to advertise interest rates, which makes it difficult for potential borrowers to “shop around.” The lack of regulation also allows for discrepancies in the advertising language. Some lenders refer to their product as a loan, while others call it an advance.

Other forms of loans
Sometimes, someone fighting a long legal battle needs financial help, but lawsuit loans are probably not the type of help you actually need or want. Before pursuing a lawsuit loan, exhaust all other possible options. Family, friends, the bank, even the credit card company is a safer, more reputable lender than most lawsuit lenders.

At the Pottenger Law Firm, we discourage all our clients from taking out risky or misleading loans. If you were injured in an accident, you should contact a personal injury lawyer to discuss your legal options. At the Pottenger Law Firm, we prepare every case as though it may go to trial. For more information on what to do if you were hurt in an accident, please contact The Pottenger Law Firm at (816) 531-6006, or submit our contact form today for a free consultation.