An Ultimate Guide to Settlement Loans: Are They Right for You?

If you’ve suffered an injury due to someone else’s negligence, it’s important for you to lodge a personal injury claim so you can receive just compensation. A severe injury can cause many financial hardships like being unable to earn an income or pay off medical bills. Given the complexity of these types of claims, it can take months or even years to finalize. 

Luckily, settlement loans exist to help plaintiffs and injury victims weather periods of financial stress before their cases finalize.

Although many plaintiffs refer to lawsuit funding products as loans, in actuality, they are not loans and do not accrue interest like traditional loans.  They are cash advances that accrue usage fees and do not need to be repaid if your case is lost. Any mention of “loans” or “interest” in this article is for the mere purpose of making it more relatable to how consumers refer to them. 

Keep reading to find out more about lawsuit loans so you can make an informed decision on whether a settlement loan and lodging a personal injury claim is the right choice for you. 

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What Are Settlement Loans?

Settlement loans are cash advances on lawsuit settlements. Instead of waiting until your settlement check arrives, you can apply for an advance on the money in the form of a lawsuit loan. 

Lawsuit loans, also known as pre-settlement funding, don’t come from the defendant or court system. Instead, they are independently administered by credit providers such as Legal-Bay Lawsuit Funding. Lawsuit loan providers are niche financial companies who typically specialize in pre-settlement funding

Traditional banks do not administer pre-settlement funding as this is a specialized credit. 

What Can Lawsuit Loans Be Used For?

Once you have applied for and received a settlement loan, you can use this to pay for any purpose you want, such as:

  • living expenses
  • attorney fees
  • credit card bills
  • rent or mortgage
  • school fees
  • medical bills

Although there aren’t any restrictions on how you use the money, it’s best to conserve it for necessary expenses, such as those listed above. Using a lawsuit loan to fund discretionary spending or luxury purchases wouldn’t make financial sense as you would need to pay interest on the money. 

The Benefits of Lawsuit Loans

Lawsuit loans offer plaintiffs a streamlined way to get an advance on their settlements. Lawsuit loans also come with zero risk and aren’t subject to the same approval criteria as traditional loans.  

Below are some of the primary advantages of pre-settlement funding.

A Financial Lifeline

One of the overarching benefits of lawsuit loans is that they can be a lifeline during times of financial crisis. 

If your accident was minor, and you didn’t sustain serious injuries, you may be able to carry on with life as normal while your lawsuit is pending. But if you sustained severe injuries, there’s a good chance that you might not be able to work for the time being.

Worst-case scenario, disability from your injuries may prevent you from earning an income for the foreseeable future which can have major repercussions on your finances. 

Survey results reveal that 56% of US adults can’t cover a $1,000 emergency from their savings account. Data from the Federal Reserve shows that only two in three adults can cover an unexpected $400 expense with cash. Being unable to pay bills or even buy groceries can be incredibly stressful and scary. 

Pre-settlement funding can enable you to avoid financial disasters such as eviction because of late rent or having your home repossessed because you cannot pay your mortgage. With a settlement advance in hand, you can bring your payments up to date and keep them that way until your settlement comes to fruition. 

Pay for Medical Treatment

Besides allowing you to cover basic expenses and rent or mortgage payments, settlement loans can also help you pay for treatment for your injuries. 

It’s no secret the US has the most expensive healthcare system in the world. While most people have some form of health insurance, it’s not always an adequate option. 

In many cases, Americans are forced to skip or delay treatment for financial reasons. Reports reveal that one-third of US adults say that they or a family member has forgone a recommended treatment in the past for financial reasons. A further four in ten have delayed treatment. 

If you’ve suffered any type of injury, the medical bills can pile up quickly. Skipping or delaying treatment due to the cost can have severe impacts on your recovery, delaying healing, and increasing the chances of long-term complications. 

A lawsuit loan can provide you with the cash injection you need to seek out specialists and get comprehensive care. 

Grant You Financial Peace of Mind

Another benefit of lawsuit settlement funding is the effect it can have on your mental health and well-being. Stressing about money is the last thing you want to be doing while in recovery from an accident or injury. 

Studies have shown that stress can significantly delay and impede the healing process. Money stress is one of the worst forms of stress. It erodes one’s sense of safety and security and comes with constant reminders. 

A settlement loan can give you quick access to enough cash. Put these worries to rest and continue your recovery without the adverse effects of stress. 

They’re Risk-Free

Another advantage of settlement loans is they don’t attract any risk. Unlike regular loans, lawsuit loans are repayable only if your case is successful. Furthermore, providers don’t require you to repay any of the money if your case is unsuccessful. 

Settlement loans that require repayment regardless of your case outcome can land you in an even worse financial predicament, and the providers that offer these aren’t acting ethically or responsibly. 

You Don’t Need a Perfect Credit Score

Another significant benefit of settlement loans is they don’t require a spotless credit score. If you’ve been in financial dire straits due to an injury, there’s a good chance this has already impacted your credit record.

With a regular loan, the lender is relying on you to pay back the loan out of your income. Lawsuit loans are automatically repaid out of your settlement. As we said above, if you lose your case, you aren’t required to pay back the settlement loan. 

Instead of evaluating your paystubs and credit record, settlement loan providers investigate the potential success of your case. Pre-settlement funding providers assume all the risk, they need to establish that your case has a high chance of success. This determines both your chance for approval and the amount you are eligible for. 

The Application Process Is Usually Quick

Lawsuit loans don’t go through the same process as traditional loans. The application process is a lot quicker and more streamlined.

A settlement loan company that operates to high standards will be able to quickly evaluate your individual case and determine your eligibility. Once your lawsuit loan is approved, the pre-settlement funding amount can arrive in your account within a matter of days or even hours. 

Here at Legal-Bay Lawsuit Funding, we understand how important fast turnarounds are. If you’re in a dire financial situation due to an injury, the last thing you need is to wait weeks for pre-settlement funding—or to have to navigate a cumbersome application process. 

Give You More Breathing Space and Bargaining Power

If you’re in financial trouble and desperate for a settlement, this can force you to accept a lowball offer. Insurance companies know this, and many aren’t above taking advantage of plaintiffs. It’s a well-known fact in the industry that some insurers will employ delaying tactics to force plaintiffs to accept settlement amounts that are far below the full value of their claim, even if they have a strong case. 

This might sound shocking, but it’s important to remember that insurance companies aren’t there to protect consumers. No matter what their marketing says, insurance companies exist to make a profit. The less they can pay out in claims, the more this benefits their balance sheet. 

Seek More Comprehensive Medical Attention Can Benefit Your Case

Along with giving you more leverage and bargaining power, a settlement loan can also benefit your case by allowing you to seek prompt medical attention. 

As we outlined earlier, a lack of money can often force people to delay or forgo medical treatment. One of the biggest mistakes victims can make is choosing to delay incurring major medical expenses until after they receive their settlement. 

Needless to say, this can negatively affect your recovery and long-term outlook. But it can also negatively impact your case. 

Delaying treatment can give the opposing party more ammunition against you. They may claim that your injuries can’t be as bad as you’re trying to prove, because if they were, you would have gotten medical attention sooner. 

You Don’t Have to Worry About Monthly Payments

Finally, unlike personal loans and other lines of credit, lawsuit loans don’t require monthly repayment. If you’re unable to earn an income thanks to an injury, and you’re faced with mounting medical bills, there’s little point in taking out a loan that’s going to require you to make monthly repayments. 

Lawsuit timelines are unpredictable, and there’s no way to know for sure when your settlement will finalize. Therefore, taking out a regular loan or, worse, overdrawing your credit card can be a risky choice. 

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The Potential Drawbacks of Lawsuit Loans

Lawsuit loans can be an invaluable source of financial relief, which can allow you to cover bills, seek medical care, and hold out for a fair settlement. But there are some potential drawbacks to consider. 

Here are the two main things to be aware of around lawsuit loans.

Interest Costs

The primary drawback of pre-settlement funding is that you will need to pay interest on the lawsuit loan. 

However, the exact interest rate you will pay depends very much on the lender you pick and your individual case. Some lenders charge exorbitant interest rates or couch their rates in attractive terms while charging frequently compounded rates. 

Others charge reasonable interest rates and only approve pre-settlement funding for cases with a high chance of success. 

For instance, here at Legal-Bay Lawsuit Funding, we provide simple terms ranging from 12% to 40% per annum, depending on the nature of your case. 

Predatory Lenders

Another drawback to pre-settlement funding is the presence of predatory lenders in the space. Although there are extensive best practices that reputable lawsuit loan providers adhere to, not all lenders operate to this standard. 

The most unscrupulous lenders can ask for up to 200% interest. Their interest fee structures are often misleading or withheld until applicants are on the verge of receiving their settlement loan. 

Fortunately, many reputable settlement loan providers offer clear, fair interest structures that don’t mislead their clients. We go into detail on how to find a trustworthy settlement loan provider below. 

How Defendants Can Delay Case Outcomes

Insurance carriers have entire legal teams on their payroll and are more than capable of triggering delays in claim cases. Insurers can do this by filing:

  • a motion to dismiss even if they know it will fail (this might require the victims and their attorney to redraft their complaint)
  • a motion to change forum (this is a request to move the case to a different court)
  • motions to apply various restrictions to the case
  • motions to exclude evidence
  • appeals

What Types of Cases Are Eligible for Settlement Loans

The first requirement for qualifying for a settlement loan is to have an attorney assigned to your case. Your case also needs to be strong enough to ensure a good chance of success. 

As far as case types are concerned, this depends very much on the specific lender you use. Some lenders may provide lawsuit loans only for a select few types of cases, such as personal injury or car accident cases. 

As a leader in the pre-settlement funding space, here at Legal-Bay, we offer lawsuit loans for a variety of case types, including:

  • auto and vehicle accidents
  • civil lawsuits
  • civil rights
  • commercial litigation
  • construction accidents
  • discrimination cases
  • dog bite cases
  • legal malpractice
  • life insurance buy-outs
  • medical malpractice
  • negligence claims
  • pedestrian accidents
  • personal injury
  • pharmaceutical cases
  • product liability
  • police brutality
  • sexual abuse and harassment
  • slip and fall cases
  • wrongful death
  • wrongful termination
  • wrongful imprisonment
  • attorney or law firms (case or receivable financing).

This is by no means a full list of the case types we offer pre-settlement funding for. To find out more, you can visit this page. If you do not see your particular case type listed, you can still apply online, and our helpful agents will work with you to find a potential solution.

Lawsuit Loans Aren’t Just for In-Progress Cases

Although most plaintiffs apply for pre-settlement funding earlier on in their case, you can also apply in the final hour. If your settlement has been finalized, but you are encountering systemic delays, a lawsuit loan can be a fast way to get an advance on the money that’s already on its way to you. 

What’s more, applying at this point can also trigger lower rates of interest because the lender has full assurance that your settlement will come to fruition. 

How Does Lawsuit Loan Repayment Work

Lawsuit loan repayment becomes due when your case is finalized and you receive your settlement. When this happens, some immediate expenses come off first, including your attorney’s fees (if they operate on a contingency fee structure) and other litigation costs. 

After these expenses are paid, the amount that’s owed to the lawsuit loan provider will come off, and the balance will be transferred directly to you. The amount that’s paid to the settlement loan provider will include the original lawsuit loan plus the accrued interest. 

How to Determine If Pre-Settlement Funding Is Right for You

Not sure whether pre-settlement funding is the right option for you? Here are a few key things to consider. 

Your Current Income

One of the first things to think about when evaluating whether or not to leverage a lawsuit loan is your current income. Are you able to earn enough to support yourself and cover any necessary medical expenses while you wait for your settlement?

Or are you without an income thanks to the accident? If so, a lawsuit loan might be the best solution. If you are unable to earn an income, this might plunge you into financial disaster. It can rob you of the ability to pay basic living expenses and retain assets such as your home or vehicle. 

Being without an income can also jeopardize your chances of applying for traditional types of credit, such as a personal loan. What’s more, without an income you won’t be able to make monthly repayments on these types of debts. If you default on a personal loan, home equity loan, or other lines of credit, this can impact your credit score and jeopardize your real assets. 

Your Medical Costs

Are your medical costs high? If you’re unable to cover any out-of-pocket medical costs your injuries have or will incur, it might be a good idea to look into pre-settlement funding

If your insurance doesn’t cover all your medical expenses, you’re left with no choice but to come up with the money yourself. Your settlement is meant to reimburse you for medical expenses. But if you can’t access the money and your case is dragging on, this might force you to forgo the treatment you need. 

As we said above, forgoing health care because you can’t afford it can negatively impact recovery, and hurt your case. If you don’t seek comprehensive treatment, the opposing party might try to claim that your injuries aren’t serious. 

The Extent of Your Injuries

The extent of your injuries is another factor to consider. If somebody else’s negligence has left you severely injured, being able to access an advance on your settlement could be critical. 

Your Overall Financial Situation and Credit Health

If your overall financial situation is dire, and your credit health is poor as a result, pre-settlement funding could be the most advantageous option. 

A poor credit score will bar you from cost-effective lines of credit. Lawsuit loans typically attract higher rates of interest than regular loans. But if you have a strong case, and a bad credit score, you might find that pre-settlement funding might be cheaper than something like a personal loan. 

What’s more, a lawsuit loan won’t place a financial strain on you each month as you only have to pay it back when your settlement comes in. 

Pre-settlement funding also places you at less financial risk. If your case is unsuccessful, and you have taken out a personal loan, you will be left in an even worse financial position. 

Your Spending Habits

Before you take out a lawsuit loan, it’s important to think about your spending habits. Are you apt to spend wisely and prioritize the right things?

If so, you can trust yourself to manage the money you receive from a lawsuit loan in a savvy way. 

However, if your personality leans toward impulse spending and money tends to burn a hole in your pocket, you’ll need to weigh this up. There are no restrictions on how you spend pre-settlement funding, but it is wisest to reserve it for necessary living expenses and medical costs. 

Using the money on discretionary spending isn’t a wise move. Because the money you receive via a lawsuit loan attracts interest, spending it on non-essential areas is an expensive way to use it. 

If you have something you want to treat yourself to, such as a trip or a luxury item, it’s best to delay these outlays until you receive your settlement, rather than using your advance.

The Timeline of Your Case

It’s very hard to accurately predict the timeframe of a legal case, but it’s still something you might want to consider. If your case is still in the early stages, and you can’t foresee how you will be able to make it financially until your settlement arrives, applying for a lawsuit loan could be a good choice. 

On the other hand, if your case is likely to finalize in the near future, and you aren’t in urgent need of financial aid, you might want to wait. Keep in mind that most reputable lawsuit loan providers have fast, efficient turnaround times on their applications.

Should you still wish to apply for pre-settlement funding, it shouldn’t take more than a few days for your application to get processed. 

The Tactics of the Defendant

Another thing you may want to evaluate when determining whether or not you need pre-settlement funding is the defendant’s tactics. 

If the defendant has already been deploying delaying tactics, such as filing erroneous motions that aren’t likely to be passed, there’s a good chance they’ll continue. This will draw your case out, increasing the time it takes for you to get your settlement. 

Interest Rate Costs

Interest rate costs are a very important factor to weigh up when applying for a lawsuit loan. In most cases, you will need to submit an application before knowing exactly how much interest you will need to pay with a provider. 

Once you do know the specific interest rate on your loan, evaluate whether the cost is justified. 

Ask Your Attorney for Their Professional Opinion

Finally, you might also want to consider your attorney’s professional opinion. Ask them if they think you should look into pre-settlement funding and, if so, whether they can recommend a provider. 

At the same time, don’t take your attorney’s opinion as the be-all and end-all. Some attorneys have a negative perception of pre-settlement funding after hearing about plaintiffs’ experiences with predatory lenders. 

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Things to Look for in a Pre-Settlement Funding Provider

If you require a lawsuit loan, it’s very important to do your due diligence when searching for a loan provider. Here are some of the things you should look for in pre-settlement funding

Fair and Clear Interest Costs

One of the most critical things to vet for in a lawsuit loan provider is fair and clear interest costs. Settlement loans do attract higher rates of interest than a lot of traditional loans as providers assume the risk. 

However, this does not mean you should pay exorbitant, unfair rates that are far above industry standards. As a general rule of thumb, anything over 40% is too high and raises questions as to the provider’s ethics. 

Besides a fair rate, we’d recommend that you only work with a provider that is transparent about their interest structure. Were you led to believe that you’d be charged a flat rate of interest, only to find out later in the process that it’s compounded?

We’d take this as a warning flag. 

Also, compounded interest can get very expensive. Compounded interest means you pay interest on the interest you accrue. Over time, this can add up substantially and eat away at your settlement until you receive far less than you anticipated. 

If a provider does charge compounded interest, make sure to ask how often it’s compounded.

Is it compounded monthly? Or more often? Frequently compounded interest can spiral out of control very fast. 

Here at Legal-Bay Lawsuit Funding, we adhere to industry standards and best practices. We know that lawsuit loans don’t have to come with sky-high interest rates, which is why we provide some of the lowest rates in the industry. What’s more, we operate on a strictly flat-rate pricing basis. 

Quick Application and Approval Process

Another thing to look for when evaluating lawsuit loan providers is a quick, simple application process. 

One of the benefits of lawsuit loans is they don’t require the same checks as regular loans. Instead, the main thing that’s required is a thorough evaluation of your case. An efficient, experienced team of representatives can undertake this in a surprisingly short time, especially if they have the cooperation of your attorney. 

There is no need for you to be dragged into lengthy approval processes. 

Here at Legal-Bay Lawsuit Funding, we understand how critical fast turnaround times can be. Therefore, we have streamlined our underwriting to approval process so you can access your pre-settlement loan in a matter of days. 

Thorough Case Evaluation

Along with fast turnaround times, you should also look for a lawsuit loan company that carries out thorough case evaluations. If the underwriting team rushes applications, there’s a chance they might turn down a strong case simply because they didn’t delve into the details. 

If you apply for a lawsuit loan through Legal-Bay, that won’t happen. Legal-Bay has more than 25 years of industry experience and an extensive internal and external support team. 

Our experience and capital resources allow us to ensure that all applications are given in-depth, individualized attention. With us, your application has the highest chance of being approved because we will never turn you down without a thorough review of your case. 

A Trustworthy Provider

One of the most critical things to prioritize when seeking lawsuit settlement funding is finding a trustworthy provider. A reputable provider will charge a fair interest rate, meticulously review your application, and offer a streamlined application process. 

They will also deal professionally with your attorney and have clear loan policies. For instance, it’s widely accepted that lawsuit loans aren’t repayable if cases aren’t successful. 

This is critical for protecting victims from being burdened with a debt they can’t pay off if they do not receive their settlement. 

If you deal with a predatory lender, they might not adhere to this practice. Reputable settlement loan providers will never try to recoup a lawsuit loan from you if you lose your case. 

Predatory providers might also extend more finance than you need. This inflates the interest they earn on lawsuit loans and erodes victims’ final settlement amounts. 

One of the easiest ways to gauge a lawsuit loan provider’s reputation and past performance is by looking at its online reviews. If a provider has few-to-no reviews or mostly negative reviews, this is a strong red flag.

On the other hand, a high number of online reviews from happy plaintiffs is a good indicator that the provider operates to high standards. 

For instance, if you look up Legal-Bay’s online reviews on Trustpilot, you will see that we have more than 180 reviews, 91% of which are 5-star. You can also read about plaintiffs’ past experiences with us. 

Legal-Bay Lawsuit Funding is a leader in the pre-settlement-funding space. We have access to large capital portfolio companies and handle all types of settlement loan applications, including those for mass tort litigation. 

Besides supplying lawsuit settlement funding directly to victims, we also work with attorneys, providing surgical funding so they can maximize case values for their clients when insurance is not providing coverage. 

How Legal-Bay Lawsuit Funding’s Process Works

If you require pre-settlement funding, you might be wondering how the application process works. Application processes vary between providers, but we can tell you how ours works

To apply for a lawsuit loan through Legal-Bay, all you have to do is hit the Apply Now button on our website and fill out a short application. After this, one of our friendly sales representatives will contact you, and our sales team will reach out to your attorney and request any relevant case documents and particulars. 

Once your case is approved it will go to our underwriting department, and we will prepare your funding amount within 24 hours. 

Are You in Need of Pre-Settlement Funding?

Settlement loans can be an invaluable way for victims to gain access to cash flow while they wait for their cases to finalize. Fighting a legal case isn’t a fast process, and there’s no guaranteed timeline. 

Fortunately, if you need pre-settlement funding you don’t have to look far. Legal-Bay Lawsuit Funding is an industry leader! We offer the lowest interest rates in the industry and some of the fastest application turnarounds. Our resources and experience also enable us to give each case the individual attention it needs. Apply here to get started!

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