Being involved in an accident can become a financial burden. There are unexpected daily expenses that arise as a result of being injured in an automobile accident. Many are inclined to take out pre-settlement loans to ease their financial burdens.
Be warned, there are many pitfalls to pre-settlement loans. These are not like traditional loans that you would receive from your bank. The interest on pre-settlement loans is very high and increases the longer the loan goes unpaid. Typically, rates range from 2% to 4%, plus fees, compounded every single month. A $1,000.00 loan could cost you $1,601.03 after a year. That is a 60% increase.
Pre-Settlement funding companies woo clients with misdirection and wordplay. They tell clients that the loan is not a direct cost to them, but rather a cost against their final settlement. Any cost against the final settlement is a cost to the client. The money for repayment of that loan comes out of the client's portion of the settlement proceeds. The loans, like any lien on a case, must be paid before medical expenses. Depending on the age of the loan and the compounded interest, clients could find themselves receiving nothing out of their settlement. Further, clients could find themselves receiving nothing out of their settlement and still owing money for medical expenses.
It is true that if your case is not successful, you do not pay back the loan. However, success can come at a high cost.
We caution our clients against taking these loans unless absolutely necessary and only after they have exhausted all of their option such as seeking financial assistance from their families and friends or their private lending institution. If you find yourself in a position to take a pre-settlement loan, it is recommended that you take only a small amount of money, essentially take only what you absolutely need. Do not borrow yourself out of your own recovery.