I Need Money – Should I Take Out a Loan Against My Injury Claim?

Check out the 90 second video below, or scroll down for the more thorough blog post below.

Cash advance companies apply so much interest that you could wind up getting hardly anything in your pocket when your case settles.

I’ve had clients who have received a relatively modest loan, say $500. As we all know: cash is king!

Money Cash GIF - Find & Share on GIPHY

However, depending on how long it takes to settle the injury claim, that $500, with interest, could require pay back of double or triple the original loan. That means we’re talking $1,000 or $1,500 payback from an original loan of $500. Granted, most of these companies will only give out the original loan if the case has high value, liability is clear, and there is defendant, or insurance company, who will reliably pay in the end. However, even if you have a good case, loans are problematic.

A cash advance now makes it harder to settle your case later.

Consider this hypothetical: your case is worth $100,000. Liability is clear, you’ve got significant injuries, and there is enough insurance coverage to pay your damages. If you take out a loan that is only 20% of the case value, or $20,000, that doesn’t seem like a lot, right? Not so fast.

Say you get the $20,000 cash advance. Depending on how long it takes to settle your case, you could owe almost $60,000 back when all is said and done. Just because you took out the loan and you owe more back, it does not mean that the insurance company owes you more than the $100,000. That’s a problem. Your attorney, likely working off a contingency fee, is likely taking a 40% fee for their time and energy into settling for the $100,000. That means that there is no money left.

Let’s do the math: $100,000 – $60,000 –  $40,000 = $0.

This is a scary scenario. It basically means there isn’t enough money to pay out your settlement to all parties owed money, all because of a cash advance. Your case will likely involve reimbursement for your medical bills and additional cost reimbursement. Where is that money going to come from? Even worse, you’re not getting anything more in your pocket than what you got out of the original loan. That is hardly the outcome you want after fighting  for your case for an extended period of time.

Here is a screenshot from an actual cash advance contract outlining the fees involved:

 

Companies like Peachtree, Oasis, and other ‘cash advance’ companies are not subject to the same ‘loan’ laws that other lenders must abide by. That means these companies take a risk, but also reap a lot of interest when payback time comes.

At the end of the day, you might as well be doing this:

Throw Away Make It Rain GIF - Find & Share on GIPHY

 

There are a small number of times when a cash advance does make sense.

If your lawyer confirms that there is an extremely high probability of settling your case soon (within 6 months), a loan from one of these companies is much easier to deal with. Because these companies charge compound interest, you won’t owe nearly as much when you settle within 6 months as you would if you settled 3 years after the original loan was issued.

At the end of the day, you’re likely going to need your attorney’s involvement in obtaining a loan. More importantly however, if you really need a loan (I’m talking money for food, rent, and other necessities), then you need to start that conversation with your attorney early. Let them know what is going on so they can work with you to get the best solution for you now and down the road when your case gets resolved.

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