Is Legal Funding Worth It?
Personal injury cases can end up being long, drawn-out processes for a myriad of reasons. Unfortunately, while you’re awaiting a resolution, you may be facing a difficult financial situation. You may be out of work due to your injury, and depending on your personal financial situation your inability to receive income could leave in a horrible situation. You may be tempted to accept a low settlement offer – one that will not help compensate you for all you’re entitled to – just to get out of your financial mess.
This is why the industry of “legal funding” was created roughly 2 decades ago – to assist individuals in the midst of personal injury cases during their time of financial need. The industry claims not to be a loan industry. In this respect, you’re not obligated to pay back the company you borrowed from should your attorney lose your case entirely (if you receive no compensation at the resolution of your case).
Since you are not obligated to pay back these loans should your attorney lose your case, your loan is subject to extremely high interest rates. You could end up repaying more money to the company that funded you than you receive in compensation. We’ve seen individuals pay back up to %300 of the money they initially borrowed.
If your financial situation during a personal injury case is so bad to the point that you are unable to provide for the necessities of life, legal funding may be meticulously looked into. Here are some pros and cons of legal funding for you to consider.
The Pros Of Legal Funding
- Since you have the money to stay afloat, you won’t feel pressured to accept a low settlement offer
- In some cases, legal funding can stop you from falling into a financial crisis that you cannot recover from
The Cons of Legal Funding
- Application fees and other hidden fees add up
- Interest rates can be as high as 60% and accrue over time, and a personal injury case can take up to a few years to resolve depending on its complexity
- Interest can be compounded monthly, and if your case does run more than a year, you could end up paying back much more than you borrowed
- Not all individuals with ongoing personal injury cases qualify for a loan (if a legal funding company does not feel your case will settle they likely will not afford you a loan)
- Unlike other loans, these loans are not regulated, making it extremely difficult for you to compare company-to-company to see which is the best fit for you
- Terminology differs from company website to company website, which can confuse potential borrowers.
- You could end up borrowing from a disreputable company since there is little government oversight on these companies.
If you are in a hard financial situation during a personal injury case, we suggest you turn elsewhere for financial help. Could family or friends help you out? Would you consider an installment loan? Taking out a loan from your mortgage or 401K is another last-resort resource.
If legal funding is absolutely necessary, make sure you do full research on several legal funding companies. If they are not listed by the Better Business Bureau, it’s best you stay away. Check to see if the company states the rules that govern their client relationships on their website. Be prepared with all the insight you need before even filling out an application, which could be time-consuming and costly.
We hope this helps you understand more about legal funding. And we certainly hope you are never placed in a situation in which legal funding may be necessary.