News & Articles

Car Accident Loans in 2020 are a fast growing trend in the accident case arena. Fifteen years ago nobody even heard of an accident loan for a lawsuit. Now, there are over 40,000 funding applications per month. Accident loans are the new trend to help attorneys and their clients.

Despite it’s footprint,  one has to carefully navigate among the different car accident loan companies.  With accident loans companies multiplying choosing the right company can mean the difference in thousands if not tens of thousands of dollars.

1 . Cash Advance Helps Plaintiffs:

Making the right decision about your accident loan company might be the most important decision you make in your lawsuit. Many lawyers advise against their clients taking out a cash advance loan. This is true for many reasons. One reason is that whatever work the lawyer does to help obtain this funding, he does not get paid for it. Lawyers want to make money. If they can spend time making money why would they “waste” time helping their clients? A second reason is out of ignorance. This ignorance probably stems from a bad experience that the lawyer had in the past with a particular accident loans company.

2. Do Your Research:

A typical recipient of an advance is a working,  single parent head-of-household living paycheck to paycheck with no savings. Without any independent line of credit it is going to be very hard to pay several different bills. There are medical bills to pay, especially if there is no insurance. There is rent or mortgage bills to pay. Finally, there a day to day expenses for food, internet, phone, car, etc

A simple accident can leave a person seriously strapped for cash. The best lawsuit funding company can provide that cushion so desperately needed at this time of crisis.

3: Accident Funding is Not a Loan:

People often confuse accident funding with loans. In a certain sense they are correct. That is because they are getting upfront money without immediately giving anything in return. However, that’s about as far as the comparison goes. In reality, accident funding advances are very different from loans and sometimes even better. The main difference between a loan and an accident funding advance is that you don’t pay back the advance if you lose. One always has to pay back a loan.

Before the advent of accident funding, people would try and obtain new money in several different ways. They could try and get a bank loan. One could also try and max out on ones credit cards. Or, try and obtain a loan from friends or family members. In all of these  ways, you are always obligated to pay back whatever money you borrowed plus interest. Especially if it is from a family member! This only created more money owed and sets one back even further.

4: You Don’t Pay if You Lose:

If you win or settle your lawsuit then you must pay back the lawsuit loan. However, if you lose your case, you owe the lawsuit loan company nothing.

Let’s be honest though, lawsuit loan companies are out to make a profit and each uses different means to make money out of a borrowers lawsuit. All of them charge interest but how they charge interest. How they charge interest is the key mystery. Many of them charge fees to administer, underwrite, close or handle the accident loan.  Some funders even try to make money by overcharging the client for a Federal Express delivery or bank wire.  Again, we cannot emphasize enough, choose your legal finance company carefully.

Bottom line? Lawsuit loans are not really loan at all. Rather, it is non-recourse debt that need not be paid back unless the plaintiff is successful in their lawsuit. But buyer beware!

5: Legal Funding Takes Over The Case:

Another hesitancy of lawyers is the concern that accident loans companies will take over the direction of the case. Untrue, for sure.

If a legal funding company advances a large amount of money they may feel entitled to run the case on their own. Most states forbid the outside handling of a lawsuit by non lawyers and even lawyers not chosen by the client. A smart legal funding company will decide on the funding and then step away from the day to day handling of the lawsuit. Even the discussion of whether to settle the case or proceed should be made by the client and retained attorney only.

In choosing a legal funding company, while this is usually a non issue,  make sure there is no interference.

6: Does Accident Funding Costs Too Much?:

Before settling on a accident funding company ask 3 questions: 1) Do you charge fees. 2) Do you compound your rate of interest. 3) Exactly what will I owe after 1, 2, & 3 years if I borrow “x”?  If you do not get a straight answer to all of these question, walk or run away fast, especially #3.  One of the ways an accident funding company can make money is by charging you a fee to administer the deal. An accident funding company might charge a opening fee, an underwriting fee, a closing fee and a processing fees. What’s worse is that they will add the fee amount to the amount you are responsible to pay interest on. So a $1,000 advance becomes a $1,200 advance when you tack on the $200 fee. However, you will only receive $1,000.

7: Fees and Surcharges:

You must also consider whether  the accident loan company is charging compound interest. What is compound interest vs. a fixed rate of interest? What that means is does the funder charge interest each month over the previous month and on and on. If the starting interest rate is 3%. Monthly compounded that comes to about 70% a year! Stay away from funders that deceptively advertise 3% or 4% without telling you it is monthly compounded. You want to know up front what the annual rate of interest will be after 1,2 and 3 years.