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Lawsuit advance are an attractive option for those plaintiffs who can't wait for a settlement or jury award. Money can be used to pay medical bills, lawyer fees, and generally keep the household afloat.
Unfortunately, such loans are often too good to be true. Ask Joseph Gill, who currently owes $116,000 on a $4,000 lawsuit advance. One loan cost him 58% in annual interest, while the other came in at 70%. They compounded monthly.
Plaintiffs tend to forget that lawsuit advances are loans. In fact, they have such high interest rates because they are high-risk loans.
Companies have to assess the likelihood that a plaintiff will recover at trial or in settlement. They speak to the plaintiff's attorney, determine the strength of the case, and decide on a potential outcome. Even if the odds are in the plaintiff's favor, he or she may not win. Juries are fickle and new evidence may appear.
And if the plaintiff does win, it may have taken four years to reach a verdict.
For these reasons, lawsuit advances have the potential to get out of hand. Many people owe tens of thousands of dollars after only borrowing $3,000. And if they don't earn enough from their lawsuit, they're worse off than when they began.
There are other, more reasonable alternatives to lawsuit advances. You can seek a loan from a friend or family member. You can take out a second mortgage on your home. You can obtain an unsecured personal loan from a bank or credit union.
The beauty of all of these options is that they have significantly lower interest rates than lawsuit advances. And if you borrow from a bank, the terms are subject to strict anti-usury regulations.