Are Lawsuit Cash Advances Expensive?
People sometimes ask what I do, in social conversation, and I explain to them how I help people who are in the middle of litigation use the expected value of their lawsuit to get a cash advance.
This usually takes a minute to digest while the person tries to understand how that is done exactly. They have questions like: “Who lends the money?”, “What kinds of cases do you take”,”When does the money have to be paid back?” and “How much does something like that cost?”.
After answering these questions, the person is able to grasp what I do and usually thinks it is pretty remarkable that there is yet another means in our society to get immediate cash - beyond the typical route of going to a bank and/or using credit cards. They are right that it IS remarkable, because a cash advance can really help a person with no (or low) income stream get the cash they need for survival with repayment of that advance deferred. While it is remarkable, though, it does not come without a fee - it is also expensive. The interest rate on a lawsuit cash advance correlates to the risk of loss to the funder. Because plaintiffs are not required to pay back the money they are advanced if they lose a case, funding sources must account for this in their fee structures. Typically a lawsuit cash advance will cost a plaintiff upwards of 2% monthly compound interest or a flat interest rate if the case settles within a certain time frame.
So yes, lawsuit cash advances are expensive. But since everything is relative, we can ask: “Expensive compared to what?” Compared to having a car reposessed? Compared to losing a house? Compared to taking on another credit card with fear of being able to make the monthly minimum payment? The bottom line is that a cash advance is only considered too expensive by someone who does not need the money.
A good broker will make sure the plaintiff understands these fees so the plaintiff can make the right decision for himself/herself and there are no surprises when the case settles and it is time to repay the advance.
Nifty post - and good domain by the way!