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Aug 10

The Lesser-Known Type of Loan (That You Hope You Never Need)

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There are many types of loans available today, from bridging loans to payday loans and everything in between. There are secured and unsecured loans, which can be used for nearly anything, including the purchase of a car or paying for school expenses. There are also mortgages, which are designed to help borrowers buy and/or maintain homes.

We hear a lot about these various types of loans, but there are some loans that aren’t talked about nearly as much. In this post, we’ll be focusing on one in particular: lawsuit loans. We’ll explain what they are, when you might need them, and the considerations to keep in mind with this type of loan.


What Is a Lawsuit Loan?

A lawsuit loan – also sometimes known as a lawsuit settlement loan – is a type of advance funding for an impending settlement or judgment. Lawsuit loans can be used to cover a wide array of costs, such as medical bills, lawyer fees, and living expenses.

For instance, let’s use the example of someone who has been the victim of a personal injury in a car accident caused by someone else’s negligence. If they sustained serious injuries that have prevented them from doing their job, they would likely be entitled to compensation to make up for lost income.


When You May Need a Lawsuit Loan

A lawsuit loan is a type of loan you hope you never need because it typically means you’re in a dire situation – financially and maybe physically as well. You may find yourself in need of a lawsuit loan if you’re in the middle of a lengthy legal proceeding that is taking a long time to finalize. During that period (while you await compensation from the lawsuit), you may find yourself struggling financially. It is under these circumstances that you may need a lawsuit loan. Specifically, some circumstances include:

  • A workplace injury or illness (e.g. a fall on a construction site)
  • Injury from a car or motor vehicle accident
  • Injury or illness resulting from medical malpractice (e.g. improper medication dosing, surgery error)


What To Consider About Lawsuit Loans

When deciding whether or not you need a lawsuit loan, there are several factors to think about, including:

  • High interest rates – If you’re contemplating taking out a lawsuit loan, you need to be aware of the extremely high interest rates they typically carry. Annual interest rates on lawsuit loans can range from 27% to 60%. If you took out a lawsuit loan for $100,000, you could end up paying up to $60,000 in interest alone.
  • Minimal regulation and varying terminology – Lawsuit loans were initially introduced in the 1990s, making them relatively new. As a result, there is little regulation of such loans which makes them somewhat risky. Additionally, different firms use different language around these loans, which can create confusion.
  • Difficulty finding reputable lenders – Since lawsuit loans aren’t regulated by the federal government, it’s hard to guarantee that you’ll find a credible lender. It’s important to do your research and compare lawsuit loan companies to find one you trust.


While it is a lesser-known and riskier type of loan, a lawsuit loan could still provide financial assistance to those who need it most. Before taking out such a loan, it’s important to arm yourself with as much knowledge as you possibly can to avoid making any missteps.


Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.


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