Beyond the stress of suffering an injury, people often find themselves in a financial bind due to not being able to work after being injured. Savings dwindle, and without a steady income, bills pile up. If family or friends cannot help, and a bank will not lend any money, what is an injured plaintiff to do? What about those ads on television for lawsuit loans? They say you only have to repay if you win your case. It is true that they can ease the stress of being in a financial hole. However, we try and talk every single client who considers this option out of using these companies. Going to one of these companies should be an absolute last resort.
“There’s no risk! If I don’t win my case, I don’t have to pay it back!” Good news! This is actually true. However, the company only approves payments to people who, in their belief, have a “slam dunk” case and are going to win. If the company feels your case is one that will be a tough fight, even though it is a perfectly valid case, they may decide the risk is too high and deny your application for money. These companies have proliferated in the past few years because, in part, they simply do not lend money if there is any real risk that they will not be repaid.
“I only need to borrow $10K, and I expect to walk away with $100K at the end of all this, so what’s the big deal?” There are usury laws to limit the amount of interest a bank lender can charge on a loan. This protects people taking out loans from being taken advantage of by huge interest rates. But guess what? These interest rate limits do not apply to lawsuit loans! Why? Because the borrower must only pay the money back if they win their case, these payments are not legally considered “loans,” and the usury protections for borrowers do not apply. This means that sky-high interest rates of 30% are not unusual.
So, what do those interest rates actually mean? Well, litigation can take 1.5 to 2 years to complete. If you borrowed $10K and your case takes two years to finish, at the end you can easily owe the lending company $25K or $30K. And an appeal can add years to the litigation and the interest on your borrowed money keeps running that whole time, leading to a repayment of four or five times the amount borrowed.
As you can see, if something sounds too good to be true, it usually is. Such is the case with lawsuit “loans.” I understand that it is sometimes unavoidable, and the bills must be paid. We just want our clients to go into these arrangements with their eyes open, so that at the end of litigation there is no “sticker shock” when they must repay the lending company three or four times the amount borrowed. These loans should be your absolute last resort if you are in financial trouble due to an injury.