What's a Lawsuit Loan?

Think twice before getting a lawsuit loan.

Question

I was in a car accident that wasn’t my fault. I’m currently in the middle of a personal injury lawsuit, but I need money now. Should I take out a lawsuit loan?

Answer

You need to be extra careful if you’re considering a lawsuit loan. Before you apply for one, you should fully understand how these types of loans work. You might think twice about getting one. If you do decide to look for this kind of loan, shop carefully.

How Lawsuit Loans Work

If you’re a plaintiff in a personal injury or other type of lawsuit and are short on cash, you might be able to get money right away with a lawsuit loan. Lawsuit lenders advance money to plaintiffs with the expectation that the money, plus interest, will be paid back out of a future settlement or judgment award. Generally, if you do not collect any money in the lawsuit, you don’t have to pay the loan back. (Learn more about how lawsuit loans work.)

Downsides to Lawsuit Loans

Even if you need money fast, a lawsuit loan is usually not a good option. The many reasons to avoid this type of loan include:

Lawsuit loans are costly. Once your case ends or settles, you have to pay back the principal you borrowed plus fees, like origination fees or processing fees, and interest. Lawsuit loan borrowers often find themselves paying annual interest rates of around 27% to 60%, and sometimes more than 100%.

You can’t always qualify for a lawsuit loan. Lenders will lend to you only if they’re confident that you’re going to win or settle your case. (Read more about the pros and cons of lawsuit loans.)

Lawsuit loans often aren’t regulated like other loans. Some states—through court decisions or legislation—have regulated lawsuit lending. But many have not. This largely unregulated industry has been criticized for its large fees and lack of transparency in its business practices. The lack of transparency makes it difficult for borrowers to make an informed decision about whether a lawsuit loan is a good choice and it can sometimes be difficult to get satisfaction if you think you've been treated unfairly. (Get more information about the regulations—or lack thereof—regarding lawsuit lending.)

Getting Help

Attorneys regularly advise their clients to exhaust all other means of securing a loan before signing up for a lawsuit loan. Though, if after exhausting all other options and after considering the many downsides to lawsuit loans, you still want to get one, look for a reputable lender. To find a reputable lender, talk to your attorney. You might also find it useful to use a service like the Better Business Bureau to get insight about a particular lender by reading the reviews and complaints. (Get tips on how to choose a reliable lawsuit funding company.)

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