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What Are Lawsuit Loans? What Are Their Drawbacks?

Lawsuit Loans

Legal representation is usually expensive. We know that inflation is constantly on the rise. Products, services, and commodities cost more with each passing day. The situation is no different with legal services. When you file a lawsuit Loans, many seen and unforeseen expenditures come along with it.  

The United States justice system deals with multiple lawsuits every month. We cannot even come up with a ballpark figure because it is simply impossible. Due to the massive number of cases, each lawsuit may take a long time to reach its end result. On top of that, if the judgment dissatisfies the parties, they can appeal.

So, one thing is clear, in the legal field, there are multiple stages, each more complex and time-consuming than the other. And to hire the services of a lawyer, you could even go broke!

Therefore, this is where the concept of lawsuit loans comes into question.

In this article, we will talk about the following.

  • Lawsuit loans,
  • Types of it.
  • The procedure to apply for lawsuit loans,
  • Lastly, we will try to touch upon areas of doubt about them.

So, let’s begin.

What Are Lawsuit Loans?

When a plaintiff takes out alone to cover the cost of a lawsuit, that type of loan is a lawsuit loan. This loan will cover the immediate and ongoing expenses arising from the lawsuit. In certain cases, a lawsuit loan will also cover personal expenses that the person is unable to pay due to legal fees. Under it, personal expenses will include mortgage payments, due rent, utility bills, medical bills, daily living charges, and, of course, legal fees.

Commonly, we also call lawsuit loans pre-settlement loans. It is a kind of advance payment against a future award or settlement that the plaintiff expects from the lawsuit. So, if someone is stuck in the middle of a lawsuit without money, they can take out a lawsuit loan to ensure that the case keeps going.

What Is The Purpose Of Lawsuit Loans?

The purpose of lawsuit loans is basically legal funding. These loans are to help the person having difficulty paying for a pending lawsuit. This loan does not fit the traditional type. A financial institution usually gives out a lawsuit loan by gauging the compensation that can come once the judge declares compensation in the judgment.

A List Of Purposes.

A lawsuit loan will help a plaintiff cover up immediate and ongoing expenses of the lawsuit.

  • Like most loans, this one also gives the debtor financial resources to pursue their case in court. 
  • We can think of these loans as a kind of financial cushion. It helps the clients continue the court battle till they get the settlements they deserve.
  • Since many of these loans come with contingent payment options, they are helpful even if the plaintiff loses the case. 

A plaintiff can also use it to pay off medical bills when they don’t have insurance.

Are They Actual Loans?

Well, not really. Lawsuit loans are a form of payment without recourse. We can consider it to be a contingency payment. The definition of a lawsuit loan states that it is not exactly a loan. If the plaintiff loses the case, they do not have to pay back the creditor.

Do You Have To Pay Back Lawsuit Loans?

As we discussed in our previous section, a contingency payment-based lawsuit loan is a great option. The person can only pay back if they win the case. Ideally, the plaintiff taking out the lawsuit loan pays back the creditor from the settlement amount.

The loan repayment will only begin after the execution of judgment of the case. The lawyer’s fee will be a part of the basic reimbursable expenses. The court will take these expenses into consideration when declaring the compensation amount.  

So, it is safe to say that the company that provides lawsuit loans is risking it all for you.

How Does A Lawsuit Loan Work?

The creditors grant the lawsuit loans or pre-settlement loans against a future settlement amount. Loans of this type most commonly arise out of personal injury lawsuits. This is because personal injury claims often lead to huge settlements for compensation.

What Happens Once The Person Files For The Loan?

Once the plaintiff files for a loan, the company carefully considers the circumstances of the case. They will conduct an in-depth examination to figure out the tentative settlement amount from the lawsuit. These companies have their in-house experienced advocates. They are lawyers with multiple years of experience under their hats. Once they decide the tentative amount of settlement, they will contact the plaintiff.

As the next step, they will offer a sum of money. This will be the loan amount.

What Will Be The Repayment Options?

Once the court delivers the judgment along with the compensation, it is time for you to pay back the loan with interest and a funding fee. The funding fee is a substantial amount because the creditor is basically risking their money with the loan. It is the company’s responsibility to explain the repayment process to you. If there is difficulty, you can always consult your personal injury attorney or any attorney whom you are hiring for the lawsuit. Your repayment has to come from the lawsuit settlement amount.


Now that we have reached an end to this article, we should probably give you a heads up about the downsides of lawsuit loan companies charging a very high fee for their services. This is because there is a very high amount of risk in every chance they take. Their house experts usually evaluate the chances that each case has of winning. However, it is human to err. So, mistakes might as well happen where the evaluation goes wrong or the case goes a different way. 

 This is why some loan companies charge as high as 15% of the settlement amount. While it seems a bit too much for many, they indeed need the loans to carry the lawsuit forward. Also, the compensation that they get once they win the case will be sufficient relief even after paying off the lawsuit loans.

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Nilanjana Basu
Nilanjana is a lawyer with a flair for writing. She has a certification in American Laws from Penn Law (Pennsylvania University). Along with this, she has been known to write legal articles that allow the audience to know about American laws and regulations at ease.

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