Key Takeaways
- Auto accident pre-settlement loans exist to help cover the day-to-day expenses of those who are waiting on the eventual settlement of an auto accident legal case.
- Pre-settlement funding transactions are not traditional loans. There is generally no expectation for you to pay back the money you receive if you do not win your case.
- The more likely you are to win your case, the more likely you are to qualify for a pre-settlement loan.
What Are Auto Accident Pre-Settlement Funding Loans?
Auto accident pre-settlement funding comes in the form of a cash advance meant to help people who have been injured in car accidents cover medical bills, housing and other expenses while they wait for their lawsuits to settle.
The term “pre-settlement loan” can be misleading because this type of funding is not a typical loan. If you lose your case and do not receive compensation, you do not have to repay the money. However, regulations that apply to standard loans rarely apply to pre-settlement loans and their interest rates are generally high.
Essentially, the company funds you during the case proceeding because they expect to receive the full amount plus interest from your settlement in return.
Because there’s no guarantee a funder will get its money back, companies are more likely to offer a pre-settlement loan when a case has a high chance of success. So, you may have a hard time securing pre-settlement funding if your case isn’t weighted in your favor.
Applying for funding from a pre-settlement funding company can help with immediate costs, but expect fees and interest rates to be high. Therefore, people primarily use pre-settlement loans when other alternatives aren’t available.
Pre-settlement funding for a lawsuit relating to an auto accident can be a convenient way to get your hands on funds needed to pay medical bills, legal fees and/or non-discretionary household expenses. However, pre-settlement advances are not granted to everyone, and they come at a very high cost, assuming you win the lawsuit. Before pursuing such funds, make sure you understand all terms and conditions.
Thomas J. Brock, CFA®, CPAInvestment, Corporate Finance and Accounting ProfessionalThomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.
How Do Pre-Settlement Loans Help?
Pre-settlement loans help with expenses following an auto accident. They allow you to sustain a healthy standard of living while you recover from your injuries and wait for your settlement payout. Whether you need to pay for rent or groceries, applying for pre-settlement funding can help alleviate your financial burden.
Medical bills, legal costs and day-to-day expenses can quickly become overwhelming, and many people don’t have a way to handle the onslaught of financial needs that result from an auto accident.
A 2023 CNBC|Momentive Study found that 58% of Americans live paycheck to paycheck. And according to HealthCare.gov, the average cost of just a three-day hospital stay is about $30,000. Combining these two factors often quickly results in an unsustainable financial situation.
Pre-settlement loans are specifically designed to help address this problem.
Expenses that pre-settlement funds can cover include:
- Rent
- Groceries
- Medical appointments
- Legal expenses
In some cases, the financial impact of a car accident can span years and exceed the damages covered by the defendant’s insurance company.
Potential Drawbacks
The downside of opting for a pre-settlement loan is that you will be giving up a potentially significant portion of your settlement in exchange.
Companies that offer pre-settlement loans often charge high interest rates, meaning you will receive much less from your eventual settlement.
This makes pre-settlement funding a strong option for those who cannot financially support themselves while fighting a prolonged legal case. But it makes less sense for people who can afford the temporary financial strain.
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Who Is Eligible for Pre-Settlement Funding?
If you have injuries resulting from an automobile accident and 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 a car
- Passengers/drivers in a bus
The funding company will also have its own set of qualifications for applicants seeking funding.
Qualifications
There is no one set of qualifications that applies to everyone. Each company will have its own guidelines to determine whether you qualify for pre-settlement funding.
Most companies require applicants:
- Have filed a court case.
- Have hired a qualified lawyer.
- Assume the minority of liability, meaning most liability falls on the other party.
Whether a person qualifies for legal funding usually depends on the strength of the case. Funding companies only make money if you win, so they are selective about who receives funding. If you were found at fault in the accident, it’s unlikely you will qualify.
Applying for an Auto Accident Pre-Settlement Loan
There are many pre-settlement funding companies that offer legal funding for auto accidents. You only have to 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 the financial details of the case and all 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 for an upfront 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 review different companies for their fees and timelines for receiving your funding. Financial obligations can stack up during an injury lawsuit, so choose your funding company carefully to ensure it meets your needs.
Apply with multiple companies to ensure you find the agreement that makes the most sense for you.
Read More: Can I Get Pre-Settlement Funding Without Attorney Consent?
Frequently Asked Questions About Auto Accident Pre-Settlement Loans
Pre-settlement funding is when a company buys a portion of your expected settlement. You get cash now; they get that amount plus interest if you win. If you don’t win, you don’t need to pay back the loan.
Pre-settlement funding allows you to pay for medical bills, legal fees and everyday expenses while you recover from injuries and wait for your case to settle.
Eligibility varies from company to company. You usually need to be likely to win your case to be eligible.
The funding company will get back their investment plus interest from your settlement if you win.
Editor Bianca Dagostino contributed to this article.
