11 Feb What You Need To Know About Personal Injury Cash Advances
The sales pitch in the TV ads is tempting: If you have a personal injury lawsuit and need money, contact our company and we will give you a cash advance on the ultimate settlement (or judgment) of your case. If you don’t recover, you owe the company nothing.
I had wondered how this worked, and recently had the chance to find out first hand when a personal injury client of my office contacted one of these companies about a loan.
I was not surprised to learn that these loans are less than consumer friendly.
The client enters into a purchase agreement where he “sells” the company an interest in his lawsuit, and it is correct, if the client either does not obtain a settlement, or goes to trial and loses, he owes the company nothing. While the company owns an interest in the lawsuit it has no control over the suit and all costs, medical liens and attorney’s fees are paid before the company sees any money. The client gets paid last if there is any money left over.
So what is in it for the cash advance company? Plenty!
First, they do not lend this money “in the dark.” Before they will lend any money they obtain permission from the client to discuss the merits and potential value of the case with the attorney.
Second, the amount charged for these cash advances is staggering. In this particular instance, the client was approved for $1,000.00. If his case settles within the first six months (if the case settles the next day after the loan is taken out for that matter), the cash advance company receives $1,500.00 for its $1,000.00 investment. That is a 50% return on its investment!
If the case takes a year to settle, the return is 65% ($1,650.00), a year and a half, 125% ($2,250.00), two years, 150% (2,500.00), two and a half years, 175% ($2,750.00), three years, 225% ($3,250.00).
But Good News! If the client’s case takes more than three years to resolve the maximum amount he will owe is $3,500.00, which gives the cash advance company a 250% return on its investment.
In case it is not already obvious, based upon this experience I do not recommend personal injury cash advance loans. The interest rates rival those of payday loans and are being offered to individuals when they are their most venerable.
Unfortunately, I was unable to convince my client to walk away from this. It is my hope that this article will make others think of the real cost of these loans before they act.
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