Should I Borrow Money on My Accident Case?

Is it a Good Idea to Borrow Money Against My Injury Case?

You were injured in an accident and now you need money. You heard that you can get a loan from a lawsuit financing company to borrow money on your accident case but your lawyer tells you not to. Should you do it?

It can be a good idea when you need money to pay rent, a mortgage payment, car payment or pay for medical treatment.

However, the interest rate charged on lawsuit funding loans is substantial and it doesn’t make sense to borrow money unless it’s an emergency. But almost everyone has emergencies!

When can I borrow money on my accident case?

You can borrow money any time after you retain a lawyer for your accident, even before a lawsuit is filed. However, your lawyer will first have to obtain medical records showing your injury and some other records to provide to the lawsuit loan company.

What can I use the money for?

You can use the money for anything you want but it’s best to borrow money to pay:

    • Rent
    • Mortgage payment
    • Car payment
    • Surgery
    • Veterinary bills (I include this because my pets are more important than me!)
    • Avoiding bankruptcy

Can I use the money to pay off credit cards?

It’s not a good idea to use the money to pay off your credit cards unless you want to avoid ruining your credit which has a credit score of 700 or higher or you want to avoid bankruptcy and you will stop using your credit cards.

Borrowing money to avoid bankruptcy is not a bad idea. If you file for bankruptcy, the bankruptcy court will appoint a trustee in bankruptcy who will take over your case and can even settle your case without your permission. The trustee doesn’t care how much money you receive. The trustee will only care about getting money from your settlement to pay back your creditors.

What is a lawsuit loan or lawsuit funding?

Money you receive from a lawsuit funding company is not a loan!

The money that a lawsuit funding company provides is a cash advance of your settlement. It is an investment in your case because you do not have to pay the money back if your case loses.

This allows lawsuit funding companies to charge very high interest rates which they need because they sometimes lose their money. Sometimes cases are lost and sometimes clients pass away before settlement and the case value decreases substantially. Don’t forget, the funding company only gets paid back if your case settles for enough money.

What is the maximum interest rate allowed to be charged for a lawsuit loan advance?

Loans are subject to maximum interest rates regulated by the state, while the maximum interest charged for a cash advance lawsuit “loan” is not currently regulated in New York.

Since a cash advance is not a loan, lawsuit funding companies charge interest rates which would normally be usurious, typically 3%-4% per month which equals 36%-48% annually.

Lawsuit funding companies can charge whatever interest rate they want which is why you should compare lawsuit funding companies carefully.

Rates change from company to company and even within the same company there will be different rates depending upon the risk involved with your case, your injury and the amount of available insurance.

We can usually obtain lawsuit financing for our clients at 2.5% monthly interest. For a free consultation, call us 7 Days/Nights at 1-800-HURT-911 > 1-800-487-8911.

Besides the interest rate, there are other factors which will increase the cost or the amount you have to pay back.

How much will I have to pay back if I borrow money on my lawsuit?

As a general rule, you will probably pay back 2-5 times the amount you borrow.

New York personal injury cases typically take 3-5 years to reach a trial. While it’s possible that a case could be settled in the first year or two, in the last few years, insurance companies have frequently refused to make any settlement offer until the case is near trial.

It often takes approximately 1.5-3 years to finish working on a New York accident case. When you’re attorney notifies the NYS Supreme Court that your case is finished, you then have to wait for the court to have a judge available for trial. It’s like waiting at the DMV. The waiting period for a trial is typically 1.5-2 years. The total time to reach a trial, after you see an attorney for your accident, is approximately 3-5 years.

One of our clients insisted on borrowing $15,000 to buy a motorcycle. By the time the case was settled for the entire $250,000 insurance policy, the repayment amount was $52,000. We got it reduced to $42,000 but that could’ve bought a real nice motorcycle.

Before you sign the final papers to borrow money against your settlement, be sure to review the payback schedule that the lawsuit funding company provides you. The payback schedule will show you the amount you will have to pay back at different dates.

We have had many clients who said they would pay the money back before their case settles but no one ever has. If you need to borrow money on your case, just be prepared to pay back a lot of money when your case finally settles.

Calculate if it worth borrowing money on your case

It is often worth borrowing money on your accident case if you don’t need a lot; you could get a lot more money by settling later; and you’re borrowing the money for a good reason, not for a new TV. If you’re borrowing money to pay for surgery, that will increase the value of your case. You will have to make some estimates with the help of your lawyer to determine if it is good for you.

Try this lawsuit funding calculator but note that this calculator does not calculate lots of other information needed to accurately determine your cost when obtaining a lawsuit funding cash advance or settlement cash advance.

Factors not computed by this calculator include how often the rate is compounding, origination fee, underwriting fee, maintenance fee, minimum amounts due if paid early, and the early payment penalty period (usually 6 or 12 months). The calculator only goes out 36 months but your case could take longer.

(We have not evaluated this calculator to determine its accuracy)

We often obtain lawsuit funding for 30-36% annually, but most law firms work with lawsuit cash advance companies that charge 36%-50% annually. Some law firms refuse to work with lawsuit cash advance companies. If your lawyer refuses to work with a lawsuit cash advance company, your only options are to not borrow money or retain a new lawyer.

This image shows an example borrowing $5,000 over 36 months at 42% interest with an accident case worth $35,000 for an early settlement versus $100,000 settlement value just before trial assuming that is 3 years after borrowing the money. Without including fees, you would get an additional $37,250 by borrowing $5,000 so you could settle 3 years later.

Lawsuit Funding Calculator

 

Reasons not to borrow money from a lawsuit funding company

      • You want to borrow money for a new TV.
      • The interest rate charged is very high and can be 2-3 times more than the average credit card interest rate.
      • By the time you decide to accept a fair settlement offer from the insurance company, which could be the entire insurance policy, you may find that you’re not getting much money after all the interest is paid on your lawsuit “loan”.
      • Because the interest owed accrues so quickly, you may feel pressured to settle your case prematurely for much less than its worth.
      • By the time the insurance company offers a realistic settlement offer, which is usually at the time of trial, the interest owed may be so much that you don’t want to settle and make risky decisions because of the amount you owe.
      • The lawsuit funding company requires confidential information about you and your case such as your medical records and other records so they can evaluate your case. This waves the attorney-client privilege and may waive the work product privilege which means the defense may be allowed to obtain copies of the records. The lawsuit funding company may even provide the defense with their written evaluation of the case showing an amount much less than your case is really worth, thereby making it more difficult to settle.

How to compare lawsuit cash advance funding companies?

Compare the following:

      • Monthly interest rate
      • Interest rate period
      • Compounding
      • Underwriting fee
      • Annual monitoring fee

Monthly interest rate – The monthly interest rate is just that. Lower is better. A monthly interest rate of 3.0% instead of 3.5% equals a 6% lower annual rate.

Interest rate period – This refers to the period of time the interest will be charged. For instance, if your loan is paid back 12 months and one day after you receive the money, you may have to pay 18 or 24 months of interest.

There will be a minimum amount of interest time charged. Most lawsuit funding companies charge a minimum of 12 months interest after which the minimum period of time may be 6 or 12 months.

For instance, if you pay back your loan two months later you may still have to pay 12 months interest. If your lawsuit loan company charges a minimum of 12 months interest and a minimum of 6 months after that, you will pay 24 months interest if your loan is paid back more than 18 months after you receive the money.

Compounding – Compounding is the interest calculated on the initial principal and also on the accumulated interest of the previous periods. You will want to know if the interest is compounded monthly, biannually or annually.

The more frequently the interest rate is compounded, the more it will cost you. In other words, annually is best.

Underwriting fee – The underwriting fee is a one-time charge, usually $250-$500, to review your file including investigative materials such as a police report, medical records and other records to determine how much the lawsuit funding company will loan you.

Annual monitoring fee – This is a small annual fee to monitor your case and contact your attorney to determine the progression of your case and make sure that the lawsuit funding company gets paid back.

Medical Financing

Medical financing is a loan you obtain to pay for medical treatment or surgery. Medical loans may be obtained from a medical financing company through your doctor or by a lawsuit financing company.

Should you borrow money against your lawsuit to finance medical treatment or surgery?

If you have medical insurance, it will always cost you less to go through your insurance.

Sometimes, an accident victim may not have health insurance or prefers to receive surgery by a particular doctor who doesn’t accept the health insurance. In this instance, medical financing can be appropriate. Surgery will increase the value of your case.

What is the difference between a lien and a loan?

Another choice is to ask your doctor to provide treatment on a lien. A lien is an agreement signed by you and your lawyer which promises to pay your doctor at the end of your case.

With a lien, usually, no interest will be paid. Only the principal will be paid to your doctor at the end of your case. With a loan or medical financing, you will have to repay the principal with interest.

Usually a lien is contingent upon settlement of your case. If it is contingent upon settling your case, you will not have to pay it back if your case doesn’t settle. We just received a lien from a doctor who is going to do a surgery and the lien is not contingent which means our client will have to pay it back whether his case settles are not.

Your doctor may agree to provide medical treatment on a lien or when surgery is needed may agree to a partial lien with partial medical financing.

Difference between a loan from a medical financing company versus a loan from a lawsuit funding company

A loan from a medical financing company will not be repaid from the settlement of your lawsuit. This type of loan is called a recourse loan and is a real loan. The interest rate will be subject to usury laws and will therefore have a lower interest rate. It will have to be paid back if you lose your lawsuit.

A medical loan from a lawsuit funding company will be repaid from the settlement of your lawsuit. This is the same as the lawsuit funding for personal reasons and will be at a higher rate of interest but will not have to be paid back if your lawsuit is not successful.

For a free consultation, call us 7 Days/Nights at 1-800-HURT-911 > 1-800-487-8911

Leave a Reply

Your email address will not be published. Required fields are marked *