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Should you consider a pre-settlement loan?

If you sustained serious injuries in a car, truck or motorcycle accident or in some other incident that another person’s negligence caused, you may be unable to work. As a result, you may fall behind on your bills and struggle to afford the most basic costs of living, such as food, clothing and shelter.

While the very purpose of a personal injury award or settlement is to compensate you for your financial loss, the case can take months, if not years, to conclude. In the meantime, you will need to find other ways to finance your life. One method you may consider is a pre-settlement loan.

The basics of pre-settlement funding

According to Credit Karma, pre-settlement loans — which are sometimes called pre-settlement funding, lawsuit loans or litigation financing — are not really loans at all. Rather, they more closely resemble cash advances. Before it will issue you funds, a lawsuit funding company will carefully evaluate the merits of your case, consider your odds of winning and estimate how much you can expect to receive. Using that information to guide it, the company may or may not offer you an advance.

If you do receive an advance, you can use the money to cover your living expenses and other costs as you see fit while your case pends. You will not have to repay any portion of the money until your case settles — and even then, only if it settles in your favor. However, the advanced amount does accrue interest and fees, which the lender expects you to pay out of your award.

Why you may want to use a pre-settlement loan

Pre-settlement funding comes with a few perks, the biggest of which is that you get the money you need to cover necessary expenses until your cases settles. Unlike with traditional loans, you do not need a good credit score to qualify; rather, lenders base their decisions on the merits of each case. Many lenders also make decisions within days, if not hours. Finally, pre-settlement loans give you more time to negotiate with the opposition, which could yield a larger award.

Why you should consider an alternative

Though a lawsuit loan does offer distinct benefits, it does come with a few drawbacks. For starters, the interest on these advances is often high, at between 20% to 60% each year. This is in large part due to the fact that the industry is not heavily regulated. Because personal injury lawsuits can take years to settle, you may accrue substantial interest over the life of the loan, thereby substantially reducing your recovery.

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