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Thomas J. Brock, CFA®, CPA
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- Updated: September 6, 2022
- 4 min read time
- This page features 8 Cited Research Articles
What Are Auto Accident Pre-Settlement Loans?
A pre-settlement loan for an auto accident is a cash advance that allows you to cover your living expenses while you wait for a lawsuit settlement. Although you can use the funds for any reason, people typically use pre-settlement funding to provide for their basic needs until their case settles.
The term “pre-settlement loan” is somewhat misleading because this type of funding is not technically a loan. If you lose your case and do not receive compensation, you do not have to repay the company that lent you the money.
Because there’s no guarantee a funder will recoup its money, companies are more likely to offer a cash advance when a case has a high chance of success. Regulations that apply to standard loans may not apply to pre-settlement funding.
Applying for funding from a pre-settlement funding company can help with immediate costs, but be aware that fees and interest rates can be high. As such, pre-settlement loans are primarily used when other alternatives aren’t available.
How Do Pre-Settlement Loans Help?
If you are pressed for cash following an auto accident, a pre-settlement loan may allow you to sustain a healthy standard of living while you recover from your injuries and wait for your settlement payout. Whether the rent is due or money for groceries is needed, applying for pre-settlement funding can alleviate some of your financial burden.
Medical bills, legal costs and day-to-day expenses can quickly become overwhelming, and many people simply don’t have a way to handle the onslaught of expenses that can result from an auto accident.
A January 2022 study found that only about four in 10 Americans have enough savings to cover an unplanned expense of even just $1,000. The financial toll of an accident can quickly eclipse that figure — according to HealthCare.gov, the average cost of just a three-day hospital stay is about $30,000.
Pre-settlement loans are specifically designed to help address this problem.Expenses that can be covered by pre-settlement funds include:
- Medical appointments
- Legal expenses
Without this funding, the injured party in a car-accident lawsuit could be responsible for everyday expenses, legal fees and medical bills all at once. In some cases, the financial impact from a car accident can span years and exceed the damages covered by the defendant’s insurance company.
Who Is Eligible for Funding?
If you have injuries resulting from an automobile accident and you have hired a lawyer or filed a lawsuit, you may be eligible for pre-settlement funding.Plaintiffs who may be eligible include:
- Pedestrians hit by a car
- Bicyclists hit by a car
- Passengers/drivers in another car
- Passengers/drivers in a bus
Even if you meet these conditions, the funding company will have its own set of qualifications for applicants seeking funding.
Each company has established criteria for granting a pre-settlement loan.Most companies require applicants to meet the following qualifications:
- Applicant has filed a valid court case.
- Applicant has hired a qualified lawyer.
- The majority of liability falls on the other party.
Whether a person qualifies for legal funding almost always depends upon the strength of the case. Funding companies get their money back if you win your case, which means they tend to be selective about who receives funding. If you were found to be at fault in the accident, you may not meet the qualifications for funding.
Applying for an Auto Accident Pre-Settlement Loan
The reality of pre-settlement loans is that you won’t know if you meet the requirements until you apply. There are many pre-settlement funding companies that offer legal funding for auto accidents, and all you have to do is apply to see if your case meets the company’s eligibility standards and qualifications.The pre-settlement loan process typically includes the following steps:
- You provide financial details of the case and any other information required in the application.
- The company works with your attorney to review the case.
- If your case meets the company’s eligibility standards, the company will provide a written agreement to buy a portion of your settlement in exchange for an up-front payment.
- You sign the agreement with your attorney.
- Your attorney receives the funds from the funding company and disburses the funds to you.
When applying, make sure to consult different companies about fees and timelines for receiving your funding. Financial obligations can stack up during an injury lawsuit, so vet your options carefully to ensure they meet your needs.Please seek the advice of a qualified professional before making financial decisions.Last Modified: September 6, 2022
8 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- Bennett, K. (2022, January 19). Survey: Less than half of Americans have savings to cover a $1,000 surprise expense. Retrieved from https://www.bankrate.com/banking/savings/financial-security-january-2022/
- Davison, Jessica. (2020). Types of Lawsuit Settlements. Retrieved from https://www.laprogressive.com/types-of-lawsuit-settlements/
- Estevao, M. (n.d.). The Litigation Financing Industry: Regulation To Protect And Inform Consumers. Retrieved from https://www.colorado.edu/law/sites/default/files/attached-files/litigationfinancing-2013.pdf
- Federal Trade Commission. (2002). Hiring a Lawyer. Retrieved from https://www.consumer.ftc.gov/articles/0180-hiring-lawyer
- Legalist.com (2020, May). How does litigation funding work? Retrieved from https://www.legalist.com/wiki/how-does-litigation-funding-work
- Litigation Finance Journal. (2020). When Should Clients Seek Litigation Funding. Retrieved from https://litigationfinancejournal.com/when-should-clients-seek-litigation-funding/
- National Structured Settlements Trade Association. (n.d.). Injured People. Retrieved from https://nssta.com/who-we-help/claimants
- HealthCare.Gov. (n.d.). Protection from high medical costs. Retrieved from https://www.healthcare.gov/why-coverage-is-important/protection-from-high-medical-costs/
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