What you should know
: Lately I have been noticing a lot of commercials about lawsuit cash advances. These companies promise “immediate” money for your needs, but what they don’t mention is the cost. I have loaned money to my clients before because I know how predatory these loans can be. They charge very high interest rates that often take away any benefits the client would receive from the settlement. In many cases clients are not well informed of the interest rates and how these companies work, so here is some information.
Interest rates On Cash Advances, how high is too high?
First, let’s talk about interest rates. These loans claim a 6% percent interest rate, but read the fine print. Often times this is compounded and can swell to 80% of the entire principal loan amount. Not to mention the accessory charges i.e. application fee, transfer fee, file fee… These can add up fast, so make sure you deal with a company that clearly explains what the total amount due will be and make sure that is put in writing.
Remember almost all of these loans are considered “non-recourse”, what is a non-recourse loan? Good question. Essentially this means that if you don’t pay back the company that leant you the money, you will not be held personally liable. Great right? No, this is actually not good for you. Since these loans are considered non-recourse they are not subject to usury laws. What are usury laws? These are laws that protect you against excessive interest rates charged by lending institutions, each state has its own limits.
So when you have a non-recourse law suit cash advance loan, it will generally not be subject to usury laws, therefore allowing them to charge extremely high interest rates. Keep in mind these companies DO NOT blindly lend out money on a case. Before any loan funds it is subject to an intense underwriting period. What this means is that they value your case and make sure you have a high likelihood of winning before they ever lend you money. Also, they will make sure that any amount of money they lend you is conservative to make sure it is paid back WITH interest.
Lending period, how long is too long?
Many of these short term cash advances have minimum lending periods. This is not good for the consumer. Why, because the consumer will be required to pay back a minimum amount of interest, which is generally substantial. What you want to avoid is a long-term lending period. Try to pay back the loan as fast as possible, remember that every month you are paying significant interest.
Some tips before you make a decision
If you are reading this article, you are likely considering getting a loan. Here are some tips to consider. First, ask your attorney if they will lend you the money interest free, sometimes they will agree, its worth a try. Second, DO NOT take the money unless it is absolutely necessary. This is not money you take unless it is really required to pay a bill or some type of urgent costs. Third, know exactly how much you are paying and what it will cost you.
Not All Lawsuit Cash Advances are Bad
I thought I would also point out, that while I disagree with the interest rates and business tactics of these companies, they do serve a void in the industry. Many attorneys do not have the resources or desire to lend out money to clients. And many clients are in need of immediate funds because they are not able to work because of their injury and filling out disability paperwork takes time. From my experience I have noticed that some of these lending firms are actually fair and honest, but I have also seen many take advantage of clients, something I find troubling. So if you are considering a loan think twice and know what you are getting yourself into.
Our office works with clients across the U.S. to recover substantial amounts of money for their personal injury settlement. If you have been injured give us a call, we look forward to helping you.
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