Pre-settlement funding can serve as a critical lifeline to a plaintiff involved in lengthy litigation. In fact, over $100 million in lawsuit funding is issued each year, an amount that could rapidly grow as the industry continues to expand.
Receiving money from an accident is commonly and mistakenly referred to as a “loan.” Consumer legal funding is not a loan since if you lose your case, you don’t have to pay it back. For simplicity reasons, we will use the word “loan” on this page.
Sometimes one lawsuit loan isn’t enough to cover the expenses they face during litigation. Plaintiffs can take out more than one lawsuit loan, but there are some tradeoffs they’ll face that can make this a difficult choice. If you’re thinking about taking out another lawsuit loan, you’ll want to know what it could mean for your settlement and finances.
Why Take Out More Than One Lawsuit Loan?
Settlement negotiations and court proceedings to recover damages can drag on for months or even years. Plaintiffs may find that their initial lawsuit loan isn’t enough to cover their expenses. This often occurs when the plaintiff suffered a permanent loss of income and either can’t work or must change industries. They may also face steep and ongoing medical expenses.
The good news for plaintiffs in this situation is that it’s easy to obtain a lawsuit loan, even if it’s not their first one. The legal funding industry remains loosely regulated, and there currently aren’t any caps on the amount of legal funding a person can obtain. As a plaintiff, you can obtain multiple lawsuit loans on your settlement before your case is resolved.
With additional legal funding, you can obtain an added measure of security during your lawsuit. Even if you don’t have an immediate need for money, legal funding could change what calculations you make about your case. If you’re willing to fight for your settlement longer, you could give your attorney more time to build a stronger case.
How Much Can You Take Out With Your First Lawsuit Loan?
The size of your first lawsuit loan will depend on the size of your potential settlement and your financial need. Your first lawsuit loan could total anywhere from just a few hundred to several thousand dollars. In extreme cases, you might borrow tens of thousands of dollars from your settlement with a lawsuit loan.
Your first lawsuit loan will typically be anywhere from a few percentage points up to around 10% of your settlement. A lawsuit funding company can estimate the size of your settlement based on the defendant’s insurance policy. If the size of their insurance policy is unknown, then your state’s minimum coverage laws for the relevant incident can be used as a reference point.
While you might want to take out more with your first lawsuit loan, legitimate legal funding companies actually discourage plaintiffs from borrowing too much. Lawsuit loans come with interest, and in a lengthy lawsuit a plaintiff could lose out on much of their settlement.
How Long Does It Take To Get Another Lawsuit Loan?
The first time you receive pre-settlement funding, the amount you can take out will be determined by how the underwriter valued your case. If you take out the full amount, you will not be approved for further funding. However, if the value of your case goes up, for example, because you needed further surgery, you may become eligible for more funding.
If you’ve already received one lawsuit loan, it shouldn’t take any longer for you to receive a second or third. You’ll go through the same basic application process whenever you’re applying for pre-settlement funding. As legal funding is nonrecourse, you don’t have to go through a lengthy background check to receive your funding.
Any records you have with a lawsuit funding company on past loans can be brought up instantly. This information can be cross-referenced to determine how much legal funding they’ll offer you with your next loan.
If you go to a different legal funding company than your first one, you may have to submit additional documentation relating to your first lawsuit loan. However, most legal funding companies can issue a lawsuit loan within 24 hours, regardless of the status of your case.
What’s the Maximum Amount You Can Take Out in a Lawsuit Loan?
Technically, there is no theoretical upper limit on the amount of money you can receive through a lawsuit loan. However, there are some practical limits you’ll face that can force you to make some tough decisions about your lawsuit.
Most legal funding companies will only fund you around 10% of the value of your potential settlement. For instance, if you were expecting a settlement of $100,000, the maximum amount of your potential lawsuit loan in this situation would be $10,000. Some financial institutions will offer you up to a 15% loan of the value ratio of your settlement as a lawsuit loan, but many offer 5%.
However, all legal funding companies face hard limits on how much capital they can place at risk with any single case. Most financial institutions put a cap on the amount of funding they can offer you, and few, if any, lawsuit funding companies will offer an additional loan if you’ve already borrowed against 20% of your expected settlement.
What Happens if You’ve Already Borrowed the Maximum Amount From Your Lawsuit?
If you still need a lawsuit loan after borrowing around 20% of your expected settlement, you may be able to obtain a lawsuit buyout. Typically, you’ll sell your lawsuit to a different legal funding company than the one that offered your lawsuit loans. This prevents your previous financial institution from assuming too much risk with your case.
Should you opt for a settlement buyout, you’ll turn over all rights to your settlement award to a legal funding company. In return, you’ll get a lump sum payment right now that you won’t ever have to pay back. If you’re in need of money now, or if you expect that you might receive a structured settlement to be paid out over time, a lawsuit buyout could be a good option.
Determining if a Second (or Third!) Lawsuit Loan Is Right for You
Before taking out a lawsuit loan, it’s important to ask yourself if doing so would be the right move financially for you. Lawsuit loans come with interest, and while they don’t need to be repaid if you lose your case, they do if you win. If you’re in need of money, make sure you’ve exhausted other options for paying your expenses without taking on additional debt.
Should you decide to take on another lawsuit loan, make sure that the interest rate works for you. A high compounding rate will leave you little to nothing to take home from your settlement. With a reputable legal funding company, you can obtain a low, simple interest rate on your lawsuit loan, even if you already have one (or more).