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What Are Lawsuit Loans?

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  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 04 October 2014
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A lawsuit loan is money a plaintiff may obtain in anticipation of a lawsuit settlement. Though they are referred to as loans, lawsuit loans are actually cash advances against the money plaintiffs expect to receive as the result of lawsuits. The fact that they are usually considered advances rather than loans does not mean lawsuit loans are without costs, however. In fact, lawsuit loans are usually rather expensive. A plaintiff may pay more for a lawsuit loan than he would for a traditional type of loan or line of credit.

Unfortunately, lawsuits sometimes drag on far longer than a plaintiff likes, and they are often accompanied by high legal expenses. When a person is in need of cash because a case is lingering or because of high legal fees, he may apply for a lawsuit loan to meet his needs. In such a case, a company may provide the plaintiff with no-recourse lawsuit funding in the form of a cash advance.

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Usually, a plaintiff does not take on any risk when he decides to accept a lawsuit loan. In most cases, a plaintiff is only required to repay the money he has received in the event he wins the lawsuit. These loans typically are rather expensive, however. As such, a plaintiff may save money by securing a low-interest traditional loan or line of credit instead. Many financial experts recommend applying for a lawsuit loan only when the plaintiff has exhausted all other resources and cannot meet other necessary expenses without a no-recourse lawsuit loan.

It is important to note that in most jurisdictions, lawyers cannot provide lawsuit loans for their legal clients. In most cases, lending clients money is viewed as a conflict of interest. A lawyer may, however, provide litigation services in advance of payment of his legal fees and collect the money due for his involvement once the case is settled in the plaintiff's favor. This is usually referred to as a contingency-fee arrangement.

The requirements for securing a lawsuit loan may depend on the business that is offering it. In most cases, however, an applicant is approved based on the merits of his case. Lenders are more likely to offer these loans to people who have cases they are likely to win. This means a defendant’s liability in the case should be clear, and the laws of the jurisdiction should allow for settlements large enough to repay the advance.

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