Pros & Cons of Pre-Settlement Loans in Auto Crashes

Serious car accidents don’t only affect a family physically and emotionally, but also financially. When severe injuries occur, soaring medical bills and an inability to work can mean financial ruin. If you are filing or considering filing a claim or lawsuit to recover your losses after a car accident – and you have no other available resources to tide you over – you might consider pre-settlement loans.

What are pre-settlement loans and how do they work?

Pre-settlement loans aren’t technically loans. Rather, they are a form of non-recourse funding. In a normal loan, you are obligated to pay back whatever you borrow, regardless of the circumstances. On the other hand, a pre-settlement loan or non-recourse funding only requires that you pay back the money if you win your case.

When you apply for pre-settlement funding, the lender will look over your case and determine the likelihood of you winning your claim. If the lender thinks you are a relatively safe bet, it may offer you a loan with specific terms. 

Pros of  Pre-Settlement Loans

The most obvious benefit of pre-settlement funding is that it gets much needed money into the hands of injured victims. They can help families stay afloat and avoid bankruptcy in some cases. Also, non-recourse lenders don’t check applicants’ credit, something very helpful for those struggling with credit issues.

There is a secondary benefit of obtaining a settlement loan, too. Many claimants are so strapped for money in the aftermath of their accident that they settle too quickly for far less than what their cases are worth. A car accident loan can essentially give the victim more staying power, enabling him/her to push for a higher settlement and see the case through to the end.

Cons of Pre-Settlement Loans

Pre-settlement loans

come at quite a price though. It’s a very high-risk investment for the lenders.

  • Lenders don’t check applicants’ credit.
  • They don’t check their employment history.
  • There is no collateral.

Given the weight of the risk lenders have to deal with, they generally charge a very high interest rate. This is the primary drawback to this type of funding.

Is pre-settlement funding right for you?

Before you decide whether or not to apply for pre-settlement loans, speak with your attorney to learn your options and to get referrals to reputable lenders. Non-recourse funding can be a godsend for car accident victims and their families, just be aware that it has a major drawback as well.

The Director of Government Affairs at Oasis Legal Finance, Eric Schuller, provided a no-nonsense tip about pre-settlement loans on Fox Business: “If you can go to a friend or relative to get some financial help, do so. But if you do not have that option, consumer legal funding is an opportunity for you to survive until your claim settles…When you do [get a loan], make sure that the company that you are working with clearly discloses the terms of the contract and…you fully understand what it is you are signing and your attorney fully knows about the transaction.”