Pros and Cons of Lawsuit Loans


Filing a lawsuit is expensive. Moreover, faced with dwindling financial resources and a mountain of bills, applicants often look for extra funding against their expected lawsuit proceeds. This is referred to as lawsuit cash advances, lawsuit loans, lawsuit funding or even settlement funding.

Sure, lawsuit loans are a handy resource to see you through the tough times, covering your sundry costs and expenses while allowing you enough negotiation time to hold on for a just settlement. However, there are challenges to be wary of, and in some cases, the cons could outweigh the pros.

Moreover, consumer advocacy groups vehemently oppose the idea of lawsuit borrowings and have been asking for regulations. This has pushed them closer to entities such as chambers of commerce and insurance companies that are more pro-business than pro-consumer. These groups argue that unregulated lawsuit lending provides encouragement to the plaintiffs to seek higher settlements, often hurting businesses in an unjustified manner.

Advantages of Lawsuit Lending

  • Repayment begins after settlement: Lawsuit funding is a non-recourse borrowing, so the lending company cannot ask you for repayment. These usually contain terms wherein the lender gets paid only if the settlement goes in the plaintiff’s favour, protecting you against personal liability and keeping debt-related worries at bay.
  • Your lawyer gets extra time to maximize your settlement amount: You are more likely to accept a less-than-justifiable settlement amount when under financial stress. Having litigation funding will give you and your lawyer enough time to fight for a better settlement offer from the insurance company.
  • Readily available liquid fund: A lawsuit loan usually gets quickly processed, giving you easy and quick access to liquid funds. After you submit a loan application, the lending company runs due diligence on the nature of your lawsuit. Once approved, the money gets transferred to your bank account. You can also ask for a check payment or money transfer via Western Union.

Disadvantages of Lawsuit Lending

  • It is an expensive endeavour: While it is helpful to get your hands on some easy cash instead of waiting for the lawsuit settlement amount to be credited, you need to be mindful that the lending company is out to make a profit. They may not ask for a monthly payment as most banks would, but there will be an interest payable at the end of the day from the time you receive the advance to when the lawsuit gets settled.
  • You could have a weak case for lawsuit funding: Just because you have filed a lawsuit does not mean you will get a settlement advance. There needs to be a monetary component involved at the time of settlement. Moreover, the final decision of funding rests with the lenders, and if they feel your case isn’t strong enough to result in a favourable judgment, they are unlikely to risk an investment in your lawsuit.
  • Absent government regulations: Government oversight towards the lawsuit loans industry puts you at risk of unscrupulous lenders who may be out to take advantage of your helplessness. Before deciding on a lender, do some market research of settlement terms offered, interest rates, and other hidden fees.

Weighing these pros and cons is a good place to start before you decide on a lawsuit loan. It will help you make an informed decision and prevent you from falling prey to any potential scam.


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