If you’ve been injured in an accident that wasn’t your fault, you may be waiting on a settlement from a personal injury lawsuit or claim. But lawsuits can drag on, and bills continue piling up in the meantime. This leads many accident victims to consider a type of cash advance called a personal injury settlement loan.
What Is a Personal Injury Settlement Loan?
A personal injury settlement loan, often called a pre-settlement loan, is a cash advance given to someone waiting on money from a settlement. Other common names for these loans include:
- Lawsuit loans
- Lawsuit cash advances
- Pre-settlement funding
- Pending lawsuit loans
The loan company provides cash upfront in exchange for a portion of your future settlement award. The amount loaned is typically based on a percentage of what the company expects your total settlement to be.
How Personal Injury Settlement Loans Work
If you get a personal injury settlement loan, here is the basic process:
- You apply to a lending company that provides this type of cash advance. Many have simple online applications. Most will require details on your accident case and attorney.
- The company evaluates your situation to estimate your claim’s value. If approved, they will give you a loan amount and fee/interest structure. The amount you can borrow depends on the projected settlement value.
- Once you accept the loan terms, the company will provide cash quickly – often in as little as 24 hours. The funds are sent directly to you as a check, bank transfer or prepaid debit card.
- You repay the loan, plus all fees and accrued interest, out of your final settlement award. The lender gets their money directly from your settlement check, before you receive the remaining funds.
Benefits of Personal Injury Settlement Loans
There are some potential advantages to getting a cash advance against a pending settlement:
- Quick access to funds when you have no income and mounting bills
- No credit check or employment requirements
- Only repay if your case succeeds
The ability to get cash almost instantly is the biggest motivator for most people with accident claims or lawsuits. Within days, settlement loan funds can help pay for:
- Medical treatments and appointments
- Rent or mortgage
- Car payments
- Everyday necessities like food and utilities
And since repayment is tied to your settlement only, the risk seems low if you expect a substantial payout from your claim down the road.
Drawbacks of Personal Injury Settlement Loans
While the quick cash may sound appealing, settlement loans also have some significant downsides to consider.
Exorbitant Fees and Interest Rates
- Interest rates typically exceed 100% APR
- Origination fees, processing fees, and late charges add up fast
- Total cost to repay loan can double (or more) what you borrow
Repayment Amount is Hard to Predict
- Most lenders take their money off the top before you get remaining settlement funds
- If settlement is less than expected you still owe fees based on amount borrowed
- Net settlement after paying back loan can be much lower than anticipated
Impact on Underlying Injury Claim
- Judges/juries may award less if they know plaintiff already received settlement money
- Defense lawyers may try to admit loan details to reduce perceived damages
- Getting cash now means accepting less total money in the end
Alternatives to Settlement Loans
The high fees and possibility of reducing your eventual settlement have many personal injury attorneys advising against these types of cash advances for their clients. Before choosing a settlement loan, explore some alternatives:
- Ask about advancing money from your own auto or health insurance – If your bills are accident-related, your insurance providers may advance payments through the med pay or PIP portions of your policy. This avoids paying back the money with interest.
- Borrow from friends/family at lower interest – Ask relatives if they can lend you money at friendlier terms until you receive settlement funds. Even a credit card cash advance would provide lower fees.
- Look into hardship programs or charity assistance – If lack of income has created crisis-level struggles to afford basics like housing, food or transportation, there are nonprofit groups in many communities to help those recovering from accidents or illnesses. Contact local religious organizations, United Way chapters, social services agencies or similar charitable groups to explain your situation and request aid or temporary financial relief.
- Discuss installment plans with service providers – Talk to your landlords, mortgage companies, utilities providers and other recurring expense billers to see if any offer deferred payments plans for situations like yours. This spreads costs evenly without further borrowing.
What Does a Personal Injury Settlement Loan Cost?
With sky-high fees, a major risk of settlement loans is not understanding the true costs to repay them. Here is an example cost breakdown:
You borrow $5,000 against an expected $60,000 settlement.
The lender charges 15% of claim + fees.
| Fee Type | Amount |
|---|---|
| Origination Fee | $750 |
| Processing Fee | $400 |
| Interest Rate | 12% per year |
| Term | 18 months |
Over 18 months at 12% APR, the interest will be $1,200. Combined with origination and processing fees, your total charges are $2,350.
So to repay a $5,000 cash advance, you would end up paying $7,350 back to the lender out of your settlement. That makes the true cost of this loan equal 146% of the amount borrowed.
And that’s a fairly typical loan! Rates often exceed 200-300% APR when you calculate the total interest and fees paid vs. cash received.
Key Question: Are Settlement Loans a Good Idea?
Before getting a cash advance against a pending injury claim or lawsuit, the most important question to ask is:
Based on my current situation, are the benefits of quick cash now worth repaying a much larger amount, including very high fees and interest charges, out of my future settlement?
For those barely getting by without income during a lengthy legal process, settlement loan funds can certainly stay afloat despite the eventual repayment cost.
But if you can find alternatives – even short-term options that carry some fees or interest – a settlement loan should be an absolute last resort. The potential reduction in your final claim payout is just not worth it for many people after evaluating their options.
Consult with your personal injury attorney for advice based on your specific case and financial needs before choosing to take on an additional cost burden with legal and financial consequences down the road.