Pre-settlement loans can provide critical financial relief when you’re involved in a lawsuit and need immediate funds to cover expenses. These loans are specifically designed to offer cash advances to plaintiffs who are awaiting a settlement but need money now for medical bills, rent, or daily living costs. However, not every applicant gets approved for a pre-settlement loan, which can leave some individuals wondering why they’ve been denied.
This blog will explore the common reasons for pre-settlement loan denials, the factors lenders consider when approving applications, and alternative options if your loan is denied.
What Is a Pre-Settlement Loan?
Before jumping into the reasons for denial, it’s important to understand what pre-settlement loans are and how they work. A pre-settlement loan is a cash advance plaintiffs can receive based on the expected settlement amount of their pending lawsuit. Essentially, the loan is approved based on the merit and value of your legal case rather than your income or credit history.
Unlike traditional loans, pre-settlement loans are non-recourse, meaning you only repay the funding if you win or settle your case. This makes them a valuable option for plaintiffs struggling to make ends meet during lengthy legal proceedings. However, as beneficial as these loans can be, they’re not guaranteed for every applicant.
Common Reasons for a Pre-Settlement Loan Denial
Several factors can lead to a denial for a pre-settlement loan, even if you feel your case is strong. Here are the most common reasons:
1. Poor Credit History
Although most pre-settlement loan companies emphasize your legal case over your credit score, some lenders still consider your credit history to assess risk. If you have significant past financial issues, including defaulted loans or unpaid debts, this may raise a red flag for the lender.
That said, it’s worth noting that many lenders weigh your case value far more heavily than your credit score, so poor credit is not always a dealbreaker.
2. Insufficient Case Value
One of the key factors lenders look at is the potential value of your case. If the estimated settlement amount is low, the lender risks not recouping their advance after legal fees and other deductions. For example, smaller personal injury claims or cases with weak evidence may not appear financially viable to a lender.
Lenders are more likely to approve pre-settlement loans for high-value cases, such as major car accidents, serious medical malpractice claims, or wrongful death lawsuits.
3. Weak Legal Case
Successfully securing a pre-settlement loan requires a strong and compelling legal case. A weak case with little chance of winning or settling may discourage lenders from approving an advance. Factors that can weaken a case include:
- A lack of evidence or supporting documents.
- Disputes over liability.
- An uncooperative or inexperienced attorney handling the case.
If your attorney cannot present a strong case to the lender, it could result in a denial.
4. Pending Bankruptcy
Lenders often consider financial stability when reviewing pre-settlement loan applications. If you’re in the process of filing for bankruptcy or have an active bankruptcy case, this could prevent you from qualifying for a pre-settlement loan. Borrowers who are deeply entangled in financial trouble may worry lenders about their ability to repay the advance.
5. Unfavorable Legal Jurisdiction
The state in which your case is filed can also influence a lender’s decision. Laws governing litigation financing vary across jurisdictions, and some states impose limitations that impact a lender’s ability to recoup their funds. If your case is in a jurisdiction where pre-settlement loans face legal obstacles, your application may be denied.
Factors That Can Strengthen Your Loan Application
To improve your chances of being approved for a pre-settlement loan, it’s essential to build a strong case. Here are some steps you can take:
- Hire an Experienced Attorney: A competent attorney who has a proven track record of winning similar cases can strengthen your application.
- Gather Critical Evidence: Ensure your legal team has all necessary documents, medical records, and evidence to support your claim.
- Provide Case Updates: Regular updates on the progress of your case can reassure lenders that it’s moving forward and likely to settle favorably.
Always collaborate closely with your attorney before applying for a pre-settlement loan to ensure your case is as strong as possible.
Alternatives to Consider if a Pre-Settlement Loan Is Denied
Being denied a pre-settlement loan can be frustrating, but it doesn’t mean you’re out of options. Here are some alternatives to consider:
1. Personal Loans
If you have a reasonable credit score, a personal loan from a bank or credit union may be an option. However, personal loans require regular repayment and generally don’t consider your future settlement as collateral.
2. Friends and Family
While it may feel uncomfortable, reaching out to trusted friends or family members for temporary financial assistance can be a lifeline during tough times.
3. Crowdfunding
Platforms like GoFundMe can help you raise money for living expenses or medical bills while waiting for your settlement. These platforms allow you to share your story and receive contributions from compassionate individuals or groups.
4. Payment Plans for Medical Bills
If your case involves medical expenses, negotiate payment plans with healthcare providers. Many will work with you to create flexible arrangements that align with your financial situation.
5. Pro Bono Legal Services
Some law firms or nonprofit organizations offer free or low-cost legal services, which may alleviate your financial burden during your case.
Securing Financial Stability While You Wait
A pre-settlement loan can be a valuable solution for plaintiffs facing financial hardship during a lawsuit, but it’s not a guaranteed option for everyone. Understanding why your application may be denied and taking steps to strengthen your legal case can make a big difference in your application’s outcome.
If you’re still weighing your options, ensure you’ve explored other financial solutions to stay afloat while awaiting your settlement. Every situation is unique, so consulting with your attorney and trusted advisors is key to making the best decision.
