Lawsuit loans can be a helpful tool in cases where bills are piling up and income is not enough to pay them. This type of financing can give you a little more time in the lawsuit process to obtain a better settlement. It should be noted that many times people who are being sued use time as a tool to dissuade the counterpart from accepting a settlement that is more advantageous to them than to those affected by the lawsuit.
Therefore, a lawsuit loan may be an option to alleviate the financial stress that you may go through at the time of experiencing a judicial process.
However, accessing a lawsuit loan can be expensive. This is because, at the moment of paying off your loan with the lender, you will have to pay back not only the capital of the amount owed but also the interest (which can be very high, up to double or triple the amount borrowed).
The high-interest rates are justified according to the lenders because personal injury lawsuits can take months or years to resolve (the typical lawsuit loan can range from 27% to 60%). Also, not everyone qualifies for a lawsuit loan, since the lender will analyze your case, and if you do not win the lawsuit, you are not obligated to pay the full amount owed.
That is why avoiding these loans will save you a considerable amount of money in the long run. Borrowing from the bank or even from family members will always be a better option. A mortgage loan may also be a good option, but only as a last resort; you risk losing your home if things don’t work out the way you expected.
While it is true that the federal and state governments try to protect people from unscrupulous lenders in other areas through laws that limit the interest the lender can charge, and by controlling how the lender discloses the terms of the loan; lawsuit loans are generally not regulated unlike other types of loans such as student loans.
As a matter of fact, this type of lending is not regulated by the federal government and only a few states have established regulations to help consumers.
The lawsuit lending industry argues that what they offer is not a loan, and therefore they are not subject to the laws for such services. You may wonder: So, why are they not considered loans? and this is because according to this industry, the money provided is not necessarily returned if people do not win the lawsuit. After all, they do not have the resources. So they hide the transactions as non-recourse purchases of a portion of the proceeds of a possible judgment or settlement of a future case. This argument has convinced some state legislators not to regulate their product as traditional lending. However, certain courts require lawsuit lenders to comply with state lending laws. That’s why if you plan to access to a lawsuit loan, you might want to talk to an attorney first, so they can let you know what laws in your state may help you and your situation (if any).
However, there are only a few restrictions on how much lawsuit funding companies can charge for their services and even a few requirements on how interest rates and other terms must be disclosed. Also, it is problematic to find and compare interest rates and other terms or to find the information you need to make an informed decision about the best loan or loan company for you. Even the vocabulary can vary from website to website. One company may advertise its product as a “loan,” while another will call it a “loan advance”.
So, it ti safe to say it is hard to find a company that treats customers fairly. With little government oversight, it is even more difficult to get a satisfactory deal because there are no parameters. Looking for a company that adheres to a list of best practices or standards that govern customer relations can be a start. Services such as the Better Business Bureau can provide information on reviews and complaints.
In the end, given your situation and everything we have learned so far, it will be up to you to decide if a lawsuit loan is right for you. First and foremost, carefully analyze and compare the different options and ways to protect you.