After you have found a qualified personal injury team to take your case on a contingency basis, you will know that you do not have to pay a cent until we win your case for you. However, that doesn’t mean that you don’t have expenses that you cannot cover while you are waiting. For some people, a lawsuit loan is a great option but for others it is a nightmare. Learn the pros and cons before making a decision for your own case.
Pro: You Do Not Have to Pay it Back if You Lose Your Case
One of the most appealing aspects of these loans is that they are no risk. This means that you are not going to have the pay back the loan if you do not win your case. On the other hand, if you borrow from a traditional lender, you will be required to pay it back no matter what the outcome of your case is.
Con: Interest Rates Are Extremely High for These Loans
The fact that there is no risk for you means that the lender is taking on quite a bit of risk. When it comes to a traditional loan, a lender’s interest rate is based on their perceived risk. This means that a person with good credit, which the bank believes means they will be more likely to pay them back, would get a more favorable interest rate compared to a person who has poor credit, and is therefore assumed to be less likely to pay back the loan.
The same is true of a lawsuit loan – the bank will base your interest rate on risk. However, this time that risk is not about your credit score, it is about your case. If the bank believes they are taking on a lot of risk, they could charge as much as 60% interest rate, which could significantly reduce the final damage you are awarded. Traditional loan interest rates start at about 5%.
Pro: You Do Not Need Good Credit
As discussed above, lawsuit loans do not require you to have good credit. You can have average or even bad credit. Some lenders will not even check your credit for this type of loan. With a traditional loan, they are going to always look at your credit score.
Con: It Can Be Impossible to Get One if Your Case is Not Strong
A settlement lender is only going to loan money to you if they believe there is a strong chance that you will win your case. They will likely investigate your case and talk to your personal injury attorney to get the details. They might make a decision based on how much they trust your attorney, which is yet another reason to work with the right attorney.