Lawsuit loans are offered against security of existing legal proceedings that may yield windfall income after favorable settlement or adjudication of the case. A case filed for securing compensation may take time despite the facts clearly indicating a favorable decision. In such a scenario, it is possible to use lawsuit loans to enjoy immediate cash loaned on security of future potential income after the favorable verdict.
Providers of lawsuit loans consider the following requirements essential:
Lawsuit loans are very high risk ventures for lenders because results of legal proceedings cannot be determined accurately in advance. Even the strongest case can be brought down by a combination of few unfavorable facts and a canny lawyer representing the opposite party.
In such a scenario, it is important to understand the difference between standard loans and lawsuit loans. Standard loans are offered on basis of a security. It may be something as uncertain and vague as future salaries. However, it cannot be based on a contingency like lawsuits.
On the other hand, lawsuit loans involve an element of speculation as an adverse verdict may leave the borrower without any means of repaying the loan. One option is to pay a high risk premium and secure exemption from payment in event of failure of lawsuit. This is how most lawsuit loans work. The other option is to convert the loan into a personal loan after the lawsuit ends. The interest rate charged on the latter will be significantly lower.
One can use lawsuit loans for any purpose that one desires. However, it is important to set aside sufficient funds to fight and win the lawsuit. Any attempt to weaken the case through non application of resources may lead to legal action from the lawsuit loans provider.
This loan is chosen primarily to fund the legal expenses. Using an advance on the funds receivable to secure the same funds leads to a zero expense transaction. The only loss involved here is the additional money paid to the lender which further reduces the amount gained from the legal proceeding.
Lawsuit loans are suitable in event of a financial crunch which may lead to a loss in the legal proceeding despite having a strong case. Self funding out of the potential income is better than losing the case and incurring extra liability.