A lawsuit advance is a cash amount one may receive on the pending amount of a lawsuit. Cash advances are made by a specific company who purchases the rights to that cash if and when the lawsuit settles. In the event that the lawsuit is not successful, the lawsuit advance company cannot collect against the borrower, though occasionally some fees are assessed. This type of transaction is called a non-recourse transaction, as the purchaser (the advancer of the loan) has recourse only to the proceeds of the suit.
The lawsuit advance industry got its start as organized businesses in the late 1980s. Prior to that, one might informally borrow funds from a friend, a bank, or other interested parties to tide them over until he or she successfully received funds owed as a result of a lawsuit. Today, the lawsuit advance industry is a competitive business. Interest rates depend upon the type of case, the viability of the case, and the marketable rate of companies providing advances.
Reputable lawsuit advance companies will unhesitatingly admit to a potential borrower that rates on a lawsuit advance can be expensive. Often, though, the person seeking funds pending a court decision has no other choice. Without a loan on the portion of the expected award, a person may be unable to meet personal expenses. While the suit is awaiting decision, people may find themselves losing more than whatever they have claimed in the suit. Without funds, mortgages or rent may remain unpaid, cars may be repossessed, or providing the basic necessities like food, electricity and water can be impossible.
With inability to borrow elsewhere, since loans can usually not be made by banks on the potential of possible lawsuit rewards, a lawsuit advance can be the saving grace that keeps a family going as the case winds down. Naturally, the longer the case is held up in court, the more the interest on the loan will accrue. Those who are shortly expecting a settlement, or have received an award amount but must wait several months to receive the award will pay the least amount in interest.
Interest amounts will also vary based on the type of lawsuit. Amounts borrowed may be determined by the likely amount of the settlement. In general, borrowing only what one needs is prudent, as it will mean lower interest payments when the case is settled. There are usually fees attached, but some companies waive fees, but not interest payments, when clients borrow a higher amount of money.
Lawsuit advance companies advertise through brokers, attorneys, television, and Internet sites. Since there are many companies to choose from, it is best to go with a reputable company that is a member of the Better Business Bureau. One should be certain the company is willing to disclose all fees and interest rates upfront. Companies which hesitate to offer full disclosure should be avoided.
Lawsuit advance companies may use lawyers to determine the viability of offering a loan to a potential client. They do not, however, offer any kind of legal advice to borrowers. They have no influence on the outcome of a case, and as well as lawyers who take cases based on contingency payments, they assume the risk of settlements which will not repay the loans they have advanced. They can refuse loans on the basis of cases that may not have much possibility of winning, just as lawyers on contingency can refuse cases.
Though interest rates pending a settlement may be high, they may ultimately make one’s lawsuit more profitable. Both lawyer and client tend to profit by holding out for a larger settlement, than from taking the first or second settlement offers. So even if one acquires a lawsuit advance and has to wait a few more months, thus paying more interest, he or she may ultimately end up with a higher lawsuit award, which will more than pay for interest payments associated with an advance.