When you’re in the middle of a personal injury lawsuit, waiting for a settlement can feel like an eternity. Medical bills, rent, and daily expenses don’t wait, which is why many plaintiffs turn to pre-settlement loans to stay afloat. But once you’ve taken out a pre-settlement loan, you may wonder if additional funding is an option. How many times can you get a pre-settlement loan? This guide breaks it all down for you, from the eligibility criteria to alternatives and risks involved.
What Is a Pre-Settlement Loan?
A pre-settlement loan, often called legal funding or lawsuit funding, is a cash advance provided by a financing company to plaintiffs in a pending lawsuit. Unlike a traditional loan, this type of funding is non-recourse, which means you don’t have to repay it if you lose your case. Essentially, pre-settlement loans act as a financial safety net, helping you cover immediate expenses while you wait for your settlement.
These loans can be immensely helpful, particularly if you’re dealing with mounting medical bills, legal fees, or loss of income. However, they’re not without risks, especially if you’re considering applying for multiple loans throughout your case’s duration.
Can You Get Multiple Pre-Settlement Loans?
Yes, it is possible to take out more than one pre-settlement loan, but approval is not guaranteed and depends on several factors. Legal funding companies evaluate the specifics of your case, the existing loan balance, and other critical details before deciding whether you’re eligible for additional funds.
Restrictions on Multiple Pre-Settlement Loans
- Loan-to-Value Ratio: Pre-settlement loan companies typically loan out a portion of your settlement’s estimated value, often around 10-20%. If you’ve already borrowed up to the limit permitted based on your potential settlement, getting another loan may not be an option unless your settlement prospects significantly increase.
- Legal Restrictions: Certain states have strict regulations in place to protect plaintiffs. For example, some jurisdictions limit how much you can borrow against an ongoing lawsuit. Lenders operating in these states must adhere to the law, which could restrict your ability to secure multiple loans.
- Case Progress: The closer your case is to resolution, the less likely a lender will approve another loan. Legal funders prefer cases in earlier stages, as there’s generally more uncertainty, meaning they can justify higher interest charges for a longer repayment term.
Before seeking multiple pre-settlement loans, consider the associated risks. Here’s what you need to know.
Factors Affecting Additional Loan Approval
Several factors come into play when applying for multiple pre-settlement loans. These influence both your odds of approval and the amount you may qualify for.
1. Claim Value
The value of your pending settlement is arguably the most important criterion when determining eligibility for additional loans. Legal funding companies will reassess your case’s potential outcome before deciding whether to extend more money. If new evidence strengthens your case or increases its valuation, you may have a better chance of being approved for additional funding.
2. Existing Loan Balance
If you already have an outstanding pre-settlement loan, lenders will factor it into their decision. They need to ensure their additional funding won’t surpass the portion of your settlement they expect to recoup. Essentially, you might be approved for another loan if there’s still equity left in your projected settlement value.
3. Legal Representation
Lenders often work closely with your attorney to assess your case’s progress and settlement value. Having a cooperative and communicative legal team can improve your chances of getting approved for additional funding.
4. Credit Score (Irrelevant)
Unlike traditional loans, your credit score typically doesn’t play a role in pre-settlement loan approval. This makes these loans accessible to plaintiffs who may not qualify for other forms of credit. However, this accessibility also comes with higher fees and interest rates, which could add up considerably if you take out multiple loans.
What Are the Risks of Over-Borrowing?
While multiple pre-settlement loans may seem like a solution to financial stress, there are significant risks to over-borrowing that you should carefully consider.
1. High Interest Rates
Pre-settlement loans often come with steep interest rates, sometimes reaching 30-60% annually. This compounding interest can eat into your settlement, leaving you with far less than expected once your case is resolved. Taking out multiple loans magnifies this issue, as each loan accrues its own interest.
2. Debt Accumulation
Every loan you take reduces the amount you’ll receive from your final settlement. If you over-borrow, you’ll risk walking away with little to nothing after legal fees and the repayment of your loans.
3. Potential Legal and Ethical Complications
Some legal funding agreements can create conflicts between you, your lender, and your attorney. For instance, if your settlement doesn’t cover the combined costs of your loans and attorney fees, additional legal disputes may arise. This can prolong the resolution of your case and create unnecessary stress.
Alternatives to Taking Multiple Pre-Settlement Loans
If you’re concerned about the risks of borrowing more, there are alternatives that may help you manage your finances until your settlement arrives.
1. Structured Settlements
If your settlement has already been agreed upon but payments are set to be disbursed over time, consider exploring a structured settlement buyout. This option allows you to access a lump sum of your settlement in exchange for trading future payments, providing financial relief without taking on multiple loans.
2. Financial Counseling
Consulting with a financial advisor can help you reassess your budget and explore alternative ways to manage your expenses. Sometimes, small tweaks in spending habits or exploring secondary income sources can alleviate financial strain.
3. Family and Community Support
If possible, turn to family members or local support programs for temporary assistance. Unlike loans, this type of support doesn’t come with interest or repayment risks.
Proceed with Caution When Borrowing
Multiple pre-settlement loans can be a lifeline in certain situations, but they also come with significant risks. Always work closely with your attorney to fully understand your case’s potential settlement value, as well as the terms and interest rates associated with legal funding. Avoid over-borrowing and weigh the alternatives carefully before deciding to take out additional loans.
Remember, pre-settlement loans are a tool, not a complete financial plan. If you’re considering legal funding, ensure you’re making a decision that best aligns with your long-term goals and financial stability.
