Last Updated: November 8, 2022

Should I Take A Lawsuit Loan In My Personal Injury Case?...Good, Bad, UGLY..

Taking A Lawsuit Loan

I wanted to talk to you about something that comes up now and again in personal injury cases, car crash workers comp, every kind of injury case. The issue is lawsuit loans. Should you take them, should you avoid them, how do they work? I actually know some people who own lawsuit loan companies. They're part owners in lawsuit loan companies.

If used properly, I guess there's nothing wrong with a lawsuit loan. But I always tell my clients, do not take out lawsuit loans and I'll tell you why. 

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The Interest Is High

The interest rate is super high. So usually the interest rate is in the 20s or thirty percent per year. And many of the lawsuit loan companies, the interest compounds monthly. So basically, what they do is they take three or four percent interest per month and add the principal at the end of the month. So in other words, sometimes it compounds even faster than that. That's why they always make you sign a 12-page agreement with tiny little type in it every time you take out a lawsuit loan. That's why I tell people not to do it.

Its Okay If It Is An Emergency

Here's one, it's okay to take out a lawsuit loan if you are injured and you don't have money coming in and you need to pay the rent. It's something important, I mean I literally tell people, is there anyone else you can borrow money from? You're better off taking out a mortgage on your house, you're better off borrowing money from a friend or a family member than you are taking out a lawsuit loan. Because whatever they charge you is almost certainly going to be less money than you're going to pay paying back a lawsuit loan.

However, if you're really in an emergency, this is what I tell clients. I am NOT walking in your shoes. If you really feel like you have nowhere else to turn and you absolutely need money, then it's okay to take out a lawsuit loan. But if you're taking out a lawsuit loan because you want to take your kids to Great America. Or it's your kids birthday party and you want some extra money to throw them a big birthday party, or you want to go out and buy a new car, or you want to take the family on vacation and you're short on money.

Illegal For Lawyers To Lend Money

That is a terrible reason to take out a lawsuit loan. Because the ultimate amount it's going to cost you is ridiculous.That's really the essence of lawsuit loans. Whenever anybody calls me and says hey I need a loan, of course it's illegal for lawyers to lend money directly to their clients. That's why I lawsuit loan companies popped up. So if you ask your lawyer for a loan and the lawyer says no, it isn't because your lawyer is mean and they're not lying to you, they're telling you the truth they're not allowed to lend you money.

Lawsuit Loan Company

But a lawsuit loan company can. But it's usually a terrible idea based on how much money they end up taking out of your settlement. I have people who, in a smaller case will take out a lawsuit loan, will file a lawsuit, we'll fight the case for a really long time. And then before you know it, most of the money in the lawsuit gets eaten up by the lawsuit loan amount that they want repaid.

So, bad news, avoid them if you can. But if you need, one here's what you need to look for. A low interest rate and you want non-recourse lending.

Non-Recourse Lending

Non-recourse lending means if you lose your lawsuit you don't pay the money back. It's just like the way you hire me, if I don't win your lawsuit, I don't get paid. A recourse loan means that you owe them the money no matter what. A non-recourse loan means if you don't get money from your lawsuit, the lawsuit loan company doesn't get paid.

Low Interest Rate

Then the second thing you want to look for is a low interest rate. The last thing I'll say is there are some companies that I've dealt with where a case was settled for not a great sum of money. There are some companies who are more flexible at the end of the case where I can call them up and work out a deal. And then there's other companies who won't take pity on you and won't give us a break on the loan repayment amount. That's something for you to think about. I don't know how you'd ever have access to that information unless you ask your lawyer or you can give me a call.

That's pretty much lawsuit loans in a nutshell. If you or a loved one who has been hurt and you need a lawyer please consider giving me a call. I work really hard for injured people. I like injured people to understand the process and please keep me in mind if a family member or a friend gets hurt.

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S DeSalvo


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