You’re in the midst of a personal injury or car accident case where it’s expected you’ll win, but the defendant has deep pockets. Meanwhile you’re losing income and seeing bills pile up.
Lawsuit loans are one option that may be viable for some people. However, there are certain mistakes you should avoid to ensure you and your family aren’t taken advantage of in this difficult time. Follow these four tips below to make sure you get the best possible financial deal.
Tip #1. Start with your attorney
An experienced personal injury attorney may already have experience dealing with pre-settlement funding and can steer you in the right direction. Even if they can’t offer a referral, it’s vital to have your lawyer looped in from the beginning by having them review the terms of the loan.
Before approving any loan, your lender will want to see documentation on your case to best determine your chances of winning. The lender may also want to see evidence that you are financially mismatched against the defendant.
In both cases, the cooperation of your lawyer will be necessary and it goes a lot smoother when the legal staff that handles these matters are aware that requests for documents are coming.
Tip #2. Talk directly to the lawsuit lending company
The lawsuit lending business works similar to insurance in that they work both with loan brokers and directly with consumers. The cost of your loan will increase if you have to pay broker commissions—perhaps as much as 20 percent—so you naturally want to work directly with the lending company.
One way to easily determine who you’re dealing with is to ask when your check will arrive and whose name it will be in. Lawsuit lending companies cut their loan checks immediately and the company name is on the check. If the answers to these questions check out, you’re talking direct to the lending source.
Tip #3. Know the details of your interest rate
Generally, you can expect to pay an interest rate that’s higher than what you would see from your local bank or even your credit card company. That’s because the lender is assuming the risk of the lawsuit. If you lose, or if your settlement comes in lower than expected, your repayment terms are adjusted accordingly. You never have to pay back more than you win and the cost of that is higher interest rates.
But there are still important distinctions in interest-rate agreements and the most important one to know is how often your interest compounds. It might be once a month or it might be more often than that. The difference can be an APR as low as 27 percent or one that exceeds 100 percent!
You might be shopping for high-end financial products here, but you can still seize opportunities like this to save yourself some money.
Tip #4. Make sure your lawsuit lending company is transparent
The lawsuit lending industry is not subject to the same regulations as banks or other financial services companies. The whole concept of pre-settlement funding is still fairly new and the government is behind the curve when it comes to regulation. Therefore, it’s up to you to make sure your lender is being fully transparent with you.
When you ask questions, make sure you’re getting direct answers. “How often is interest compounded?” is not a complex question requiring a long, drawn-out answer. If the answer you do get feels complicated, you might be dealing with a lack of transparency.
It’s not always possible in circumstances like these, but see if you can work with firms close to your home. Accountability is always increased by proximity.
The American Legal Finance Association, a trade group of lawsuit lenders, is also a good resource. While they do have the interests of their members—the lenders—ultimately at heart, they also publish a list of industry best practices and their members agree to abide by them. At the very least, the best practices list gives you a list of questions to start with.
A lawsuit loan will come with costs, but smart shopping will keep those costs manageable and ensure as much of your settlement as possible remains where it should—with you.