There is probably no question that a personal injury lawyer hates more from a client than: “Can I get loan against my prospective settlement or judgment”?
If the personal injury client is asking for a litigation loan, chances are that the client is in pretty serious financial peril. This is not uncommon for people who are not able to work due to injury and who do not have workplace disability coverage. If you are at risk of losing your house or car, you will probably be willing to try anything.
Should you resort to a litigation loan in your personal injury case?
At Auger Hollingsworth, we never recommend a litigation loan for the simple reason that the interest rate is always very, very high. Many companies charge 23% or 24%. There are also usually administrative fees for taking out the loan.
The length of time a lawsuit takes is hard to predict. While many cases are over within two years, it is not at all uncommon for a case to take 5 years. At 24% interest, you are paying an extraordinary amount for your loan.
We understand that our clients may be financially desperate and a litigation loan may be the right answer. However, before signing on the bottom line, consider:
- Do any of your debts or obligations (credit cards, mortgage, car loans, utility companies) include disability insurance? Often you have been paying disability insurance on these debts for years without realizing it. Accessing that insurance may make your household expenses more manageable without a litigation loan.
- Do you have equity in your home that you could access through a line of credit or remortgage? Under most circumstances a loan secured against your home will usually have a lower interest rate than a litigation loan.
- Can you renegotiate your mortgage payment? Sometimes people pay a higher amount on their mortgage payment than they are required to pay. Speak to your banker about whether you can lower the payment.
- Speak to your personal injury lawyer to see if you are eligible for an advance payment from the tort (bodily injury) insurance company. Although these are rare, and are not usually permitted if there is any liability issue, it is worth asking.
- Speak to your personal injury lawyer to see if you are getting the maximum income replacement benefit available.
- Ask family or friends for a loan for no interest, or lower interest, than a litigation loan.
If you decide, after considering all the options, that you still want to apply for a litigation loan, make sure you do your research carefully. Not all litigation loan companies offer the same types of loans and the same interest rates. Compare:
- service fees; and
- interest rates.
You should also find out what happens if you do not win or get a settlement in your case. Many litigation loans are “non-recourse”. That means you do not have to repay the loan if you do not win. Double check to see if the loan you are applying for has this feature.
Like most personal injury lawyers, we will never be delighted if you are forced to apply for a litigation loan. However, if you are in that boat, a little due diligence goes a long way.