Should I Use a Lawsuit Funding Company?

My Lawyer is Recommending a Funding Company – Should I Sign Up?

Most people are unaware of legal funding companies until they are in the middle of a lawsuit. At that point, borrowing from one of these lenders sounds like a great idea. However, there are significant downsides to obtaining a lawsuit loan, which you need to be aware of before signing on the dotted line.

For now, let’s look at the advantages of pre-settlement loans for those with a pending accident claim:

• Having funds to cover all your bills and keep your finances in good standing, thereby allowing you to focus on your recovery needs.
• By taking away the burden of overdue bills, missed rent payments, etc., you can take more time to negotiate a favorable settlement.

The second point is extremely important, as insurance companies prey on a victim’s desperation in order to talk them into a low settlement offer. In the long run, this doesn’t help the victim at all, but holding out for a bigger settlement is easier said than done when you see your bank account being depleted day by day. That’s why some lawyers recommend taking out a loan from a funding company, which you don’t have to pay back until you receive your settlement check.

But as we said before, legal funding comes with disadvantages that can make your life more difficult in the long run. Please keep reading to learn why you should think twice before using a lawsuit funding company.

Why You Should Avoid Pre-Settlement Funding Companies

Please note that we are not 100% against lawsuit funding, as it may be an appropriate option for some people who are waiting on a settlement from an injury claim. However, we would say that these loans are a bad idea for the vast majority of accident victims for the following reasons:

• It can be hard to get approved.

Based on all the ads online, it would appear that anyone can qualify for an early settlement loan, as long as they have an existing claim or lawsuit. But this is not true, and many people find that they have to apply with 5 or 6 different companies before their application is accepted. Keep in mind that lawsuit funding companies are taking a chance when they lend you this money. This is why they scrutinize each application and only accept borrowers whose cases have a high chance of paying off handsomely.

• The amount you receive may be less than what you need.

You may assume that you can get a loan for a certain amount due to the value of your lawsuit, as confirmed by your attorney. However, the company you apply with makes their own decisions when it comes to what your lawsuit is worth. With that in mind, you may end up with less money than you were hoping for,

• There are no regulations in California for lawsuit funding companies.

This is true in most other states as well, but it’s still a risk to borrow from an industry that is not regulated by the state. That means a lawsuit funding company can charge all sorts of fees, along with high interest rates. In addition, there are no regulations on the terms that a legal funding company has to disclose. In short, finding a reputable lender for an early settlement loan can be very challenging.

• You can end up paying 27% to 60% in interest.

That’s right – you can end up with interest rates of over 50% on top of the money you originally borrowed. Even if you take out a reasonable loan of $25,000, the interest that accrues may be over $12,500. If you have a lawsuit that takes 2 years to settle, the compounded interest on the loan, which typically accrues monthly, may be $32,000 by the time your case is resolved.

Can I Ask My Lawyer for a Cash Advance? 

Yes, you can ask the lawyer that is representing you for an advance on your settlement. Unlike most other states, California allows monetary loans between clients and their lawyers, though there are rules that both sides must follow, according to the California State Bar Association.

First, there must be a written agreement for the loan, just like you would receive from a bank or any financial institution when you borrow money. The loan terms must be clear and understandable to the client, so there is no confusion on subjects like when the repayments start and for how much. Second, the money is to be used for “reasonable” living expenses only. In essence, using an early settlement loan to cover medical bills, mortgage payments, groceries, and auto loans is perfectly acceptable. Using the funds to start a new business or buy a second home, on the other hand, does not fall under the category of reasonable living expenses.

A pre-settlement cash advance from our law firm may be the answer if you are having money problems after an accident that was caused by someone else. For more information on lawsuits loans for accident victims, give us a call 24 hours a days, 7 days a week.

What if my Lawyer Says No?

Unfortunately, your lawyer has the right to refuse when you ask for a cash advance against the settlement you stand to receive from a lawsuit. This may be surprising to you, as the state of California allows early settlement loans, as long as the lawyer is currently representing the client. However, each law firm can make the decision to issue loans to their clients, and many of them will tell you “no.” Instead, they will suggest that you take out a cash advance from a company that specializes in lawsuit funding.

However, we have gone over the cons of using these companies, including interest rates that are described as “predatory” by consumer advocacy groups. This is why it’s preferable to get a loan from the law firm that’s handling your case. So, what are your rights when your lawyer won’t give you a pre-settlement loan to help you out until you get paid from an accident claim?

Can I Get a New Lawyer?

By now, it may have occurred to you that finding a new lawyer may be the key to obtaining an early settlement loan. And we can say for sure that some of our clients have come to us from other law firms after hearing about our pre-settlement loan program. But changing lawyers is a big decision, particularly if you are in the middle of settlement negotiations or headed for trial. It’s essential that you talk to an experienced attorney to ensure that switching lawyers is the best course of action.

The personal injury lawyers of DTLA offer free second opinion consultations, which you can schedule by contacting our office. Don’t hesitate to reach out to us if you are thinking about the possibility of finding a new lawyer.

Zero Fee Guarantee

No matter where you are in the legal process, we are ready to take your case at no upfront cost. The Zero Fee Guarantee is our way of charging you $0, and instead, asking the party that injured you to pay for legal fees. Payment is issued to us as a part of your settlement check, so that means we only get paid by winning your lawsuit.

To learn more about the Zero Fee Guarantee, schedule a free consultation by contacting us today. We look forward to fighting for you and securing the compensation you are entitled to.

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