When Americans find themselves in the middle of a lawsuit and in need of money to keep their lives moving, they often find themselves seeking help from a lender. One New York based lawsuit lending company recently released a controversial advertisement, which you can click here to watch. Let’s talk about what a lawsuit loan really is.
How Lawsuit Loan Companies Work
So, what is a cash for lawsuit lending company is and how they work in the personal injury context? Basically, these lending company advance an injured person a loan based on their expected lawsuit recovery. These are what we call non-recourse loans, which means if you lose your lawsuit, you do not owe the lending company anything for the loan they advanced to you.
Lawsuit Loan Interest Rates
As you can see, there is a large risk for these lenders. The trade-off is these loans come with very high interest rates for the lending company to profit. One major company requires that you pay a minimum of 50 percent more than you borrowed. That is if you pay the money back within the first 6 months. So that means if you borrow $1,000 and your lawsuit settles 3 months later, you must pay the loan company $1,500 to settle your debt. This percentage increases periodically. So, that same loan can cost as much as $4,000.00 to repay if your lawsuit takes longer to settle.
These high interest rates on the loan would normally violate the usury laws. Usury laws are laws that prevent lenders from charging unreasonable interest rates for loan repayments. Lawsuit lending companies get around this by framing the terms as a “purchase,” of a right to a portion of the proceeds of your legal claim, not a loan.
Should I Get a Lawsuit Loan?
Personally, I recommend my clients avoid these types of loans if at all possible. Unfortunately, when a person has been seriously injured in an accident, they’re unable to work. When the insurance company delays or refuses to compensate them for lost wages or medical treatment, they can quickly find themselves in a bad financial place with no other options. So, these companies do provide a valuable service, but keep in mind, it comes at a very high cost.