Lawsuit Loans

Get the facts on lawsuit funding

The term lawsuit loans is something of a misnomer, as most of them aren't actually loans, per se, but rather a type of pre-settlement lawsuit funding that serves as an advance fee to your attorney. It is more a form of venture capital than it is a loan, at least in the traditional sense.

While actual lawsuit loans or lines of credit are available, financial institutions rarely extend these to private individuals initiating litigation. Rather, banks offer these options to law firms or lawyers; you, as the plaintiff in a legal case, will instead be offered what is technically known as no-recourse lawsuit funding.

Should I Pursue Lawsuit Loans?

The key advantage of getting a lawsuit cash advance is that these funding sources come at no risk to the borrower. If the settlement in the case is insufficient to cover the cost of the loan, or if the defendant wins the case, the plaintiff does not have to pay anything more than his or her own share of the settlement back – regardless of whether that is 0 or 100 percent of the lawsuit cash advance. You don't have to make any payments on your lawsuit loan, pending the outcome of your case. Rather, to be on the hook for your lawsuit loan, a settlement will have to be reached.

However, the fees associated with lawsuit loans are both high and complicated. They are structured so as to avoid violating federal and state usury laws – which means lawsuit funding costs a pretty penny. You should consider lawsuit loans an absolute last resort if you can't find any other way to fund your case.

Find Lawsuit Funding

Many attorneys, especially personal injury lawyers, will work on what's known as a "contingency fee" basis. This means you won't have to pay any legal fees until your attorneys win you a settlement. If they fail to do so, you don't owe them any money. However, the caveat of contingency fees is that lawyers won't usually take your case unless it's a virtual guarantee that you will win. If there's a large legal gray area in your case, you may have to pay at least a portion of the fees up front.

Your lawyer cannot extend you any funds to pay legal fees; this is a professional conflict of interest. It is recommended that you try other means of generating capital if you need it. For example, if you're a homeowner, consider taking out a second mortgage; if you're in good standing with your bank, try applying for a line of credit.

If lawsuit loans turn out to be your only option, locate a reputable litigation financing company. Your lawyer can probably recommend one. Be sure to closely compare the terms of your lawsuit funding with your alternatives; it may be cheaper just to max out your credit cards or take out a bank loan in the long run.

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