What are settlement loans

What Are Settlement Loans?

What are settlement loans and should I consider one? 

What are settlement loans

How Do Settlement Loans Work? 

Settlement loans, also called pre-settlement loans, or settlement advances provide money for those who are involved in a lawsuit and are the plaintiff. A specialized lender will examine a plaintiff’s case and determine if it’s likely the case will receive a settlement offer. If so, this is used to determine eligibility, not the applicant’s credit score. 

After submitting the application with the details of the case the lender will reach out and cann make a cash advance in as little as 24 hours. 

Settlement “loans” with high interest rates are then repaid when the case is settled. This is sometimes referred to as a recourse loan. However, it should be clear that these are not traditional loans and do not operate as such. 

Reasons for Settlement Loans 

Victims taking suit against an offending party likely have unexpected costs. These could be legal funding, medical bills, and in many cases, without paid leave from work. 

With plaintiff’s mounting costs and maintaining living expenses without income, many drop their suit for even though the strength of their case may be solid. They are unable to wait for a trial that takes place too far in the distant future, or settlement proceeds that may never come. 

What Are the Pros of Settlement Loans?  

Settlement loans are bridge loans that last months or even years unlike payday advance loans. Some may not require repayment at all if a settlement or positive judgement isn’t reached.

They are available to those with substandard credit as credit score and history is not the determining factor of eligibility. Despite their high costs, they may be better than using a credit card to carry monthly expenses. 

While settlement loans are never offered at the lowest rates, they do allow for lawsuit funding and for alleged victims to pay their bills while a complaint is lodged. 

Even payday loans have a value for people who need them. Banks may not be able to offer loans to those who do not qualify regardless of their need. 

What Are the Cons of Settlement Loans? 

Settlement loans charge neary usary finance rates. Regulation of the seldom used financial instrument is limited, even knowledge on the topic is scarce. Victims can find themselves in even more precarious situations than prior to filing suit. 

If a plaintiff secures a settlement but it’s lower than the loan and its sky-high interest rate, it’s possible the borrower may be in a less fortunate financial position than if they had never sought assistance at all, opting instead to simply drop the matter regardless of validity of the claim. 

What Happens if I Don’t Win My Case? 

Many settlement lenders offer an approach that reduces the risk the victim will say “no.” In cases presumed to have a high likelihood of a positive result, adding this guarantee enables the borrower to feel comfortable accepting the loan. 

However, not all settlement loans are structured in this regard. It’s possible that win-or-lose, the borrowed money will need to be repaid in full with interest. 

What if I Win My Case? 

Plaintiffs that settle out of court will have a variety of costs associated with their settlement. Attorney fees, borrowed money, interest, and carried debt will have to be covered. A victim that secures a settlement for $100,000 but took a settlement loan for $50,000 might find they owe $70,000 in total on the loan, $33,000 to their attorneys, and some amount to the government for taxes ($20-30,00). 

Borrowers should be careful with the amount they include in their loan deal and guard against their future expenses even in the case they win. 

However, if a borrower in the same situation had only taken $20,000 and owed $28,000 in the same settlement terms, they’d still retain some money at the end after everyone else is paid, plus the money borrowed. 

Alternatives to Settlement Loans

There are many, many alternatives to settlement loans. Friends and family can help in some cases, but can’t be universally relied upon. Consider a personal loan from your bank or credit union, an advance from an employer (presuming they aren’t the defendant in your lawsuit), home equity lines of credit, or even selling an asset and replacing it with a cheaper alternative like an SUV down to a car. 


Settlement loans enable easy access to fast cash when victims need it most. They may also put borrowers in a compromised position for which they have little control in the outcome. Not all plaintiffs will have the resources necessary to carry their family through a trial and settlement loans may be an option. But heed our distinct warning: If you must use a settlement loan, borrow as little as possible and remember you can always take another loan out later in the process. 

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