Settlement Loans

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1. What is a Settlement Loan?
2. How Does a Settlement Loan Work?
3. What Can a Settlement Loan Be Used For?
4. When Can You Use a Settlement Loan?
5. Terms of a Settlement Loan
6. Pros and Cons of Settlement Loans
7. Frequently Asked Questions About Settlement Loans

What is a Settlement Loan?

A settlement loan (also known as a lawsuit loan) is a form of financing that a person can get to help them deal with short term cash flow, while they are anticipating a legal settlement. It works like a cash advance - so if you have a lawsuit pending and expect a payout, but are struggling to cover bills in the interim, this kind of loan can help see you through until you receive your settlement funds.

How Does a Settlement Loan Work?

A settlement loan is a lot like other types of loan. You, as the borrower, receive cash (either as a lump sum or in stages) from a loan provider; you are charged interest on the money borrowed, and have to repay the loan in full (principal plus interest) when your legal case is settled in your favour. You do not have to make regular interest payments; the cost of the loan is charged, in its entirety, at the end of your case. If you lose your case for legitimate reasons and don’t get a payout, you do not have to repay the loan.

For these loans to make sense for the lender, they have to be reasonably sure that you will receive a payout that enables you to pay back the loan. So, unlike other loans, your credit score doesn’t really influence your eligibility. Instead, your case is the deciding factor; the loan company talks to you and your lawyer and approves or rejects the loan based on expectations for your case.

What Can a Settlement Loan Be Used For?

Settlement loans come in useful for a variety of reasons, and the funds released by them can be used for:

• Legal fees
• Medical expenses
• Long term care costs
• In lieu of income, meaning they can be used for:
  • Mortgage or rent
  • Food
  • Utilities
  • Debt payments
  • Childcare costs
  • Other expenses

When Can You Use a Settlement Loan?

Many people assume you have to be waiting for a big personal injury settlement to qualify for a settlement loan, but that’s far from true. Settlement loans are applicable in a number of different legal circumstances, including:

Personal Injury Cases

Injuries can happen anywhere and at any time, and result in crippling expenses and the inability to work. Settlement loans can be helpful to cover medical and legal bills while recovering from a range of injuries, including:

• Slip and fall
• Car accident
• Bicycle accident
• Assault

• Hit and run
• Sporting injury
• Medical malpractice
• Workplace injury

Inheritance Cases

Settling an estate is a complex matter, especially as the majority of Canadians do not have a valid Will. Lawyers are almost always needed to sift through the deceased’s finances, and it can take months (or even years) before assets are distributed. An inheritance loan can help cover normal day-to-day expenses, while you wait for your inheritance to come through, and also help cover the cost of legal fees in the event that there is any contention.

Terms of a Settlement Loan

Settlement loans come in many shapes and sizes, so it’s always best to check a provider’s small print before proceeding with a loan. Generally though, you can expect:

• Loan amounts starting from $0
• Administration or funding fees for the loan
• Interest rates ranging from 20% to 60%
• No set term for the loan

• No monthly payments
• No credit check required
• Financing available as a lump sum, a monthly stipend, or a combination of both

Pros and Cons of Settlement Loans

As with any financing, there are advantages and disadvantages of settlement loans.

Pros

• Access to immediate funds (which can be used for legal costs, to get a better settlement)
• Reduces time pressure to settle, again leading to better settlement outcomes
• You do not have to repay the loan if you lose your case
• No credit check required

Cons

• Expensive interest rates and fees
• Must be obtained through a lawsuit lender, not a regular loan provider
• Eligibility for this type of loan depends on your case, not your financial needs

Frequently Asked Questions About Settlement Loans

How long does it take to get a settlement loan?

Settlement loans can be released quickly (within 24hrs) once a loan is approved; the approval process however depends on your case and the loan provider’s assessment needs. Usually it takes just a simple call between the loan company and your lawyer to determine your eligibility, but complex situations may take more time.

How much can I borrow with a settlement loan?

Borrowing amounts depend entirely on your case and expected settlement. Loans are available in some cases for as little as a few hundred dollars, but there is no official “cap” on borrowing amounts, as each case is different.

What do I need to apply for a settlement loan?

Most settlement loans start with a simple phone call or online application to a loan provider; they’ll want personal information from you, your lawyer’s details, and some basic facts about your pending legal case. That’s it! Typically, your lawyer can then work with the loan company to provide the remaining details for their assessment. Very little paperwork is needed - you just need to be age of majority and have valid ID and an active bank account.

What are the fees associated with a settlement loan?

Settlement loans come with a few different fees; not every lender charges every fee, so always check which they’re applying to your loan. They can include:

• Administration fees
• Application fees
• Loan origination fees
• Funding fees
• Interest charges
• Closing fees

What’s the interest rate on a settlement loan?

Interest rates on settlement loans are generally quite high, ranging from 20% to upwards of 60%. It’s important to check how interest is compounded, as well as comparing the base rate; some companies offer monthly compounding, and others semi-annual or annual compounding, and this difference will have a significant impact on the amount of interest you pay over the life of the loan.

Can I get a settlement loan if I have bad credit?

Most settlement loans do not require a credit check at all, so bad credit makes no difference to your eligibility. In the rare instances where credit is a factor, then there are some specialist firms who offer bad credit settlement loans.
Does my settlement loan cover my lawyer’s cut of the settlement?
An often-forgotten fact when considering a settlement loan is the lawyer’s cut of any settlement. Not every legal case relies on known, set legal fees; sometimes your lawyer’s costs are covered by a share of the settlement in the event of a win. This is especially prevalent in personal injury cases. It’s important to factor this in when contemplating a settlement loan; you must realistically expect a settlement that covers both your loan repayment and your lawyer’s share.

How do I find a reputable settlement loan company?

High interest rates and fees make the settlement loan marketplace an expensive place for unwary borrowers, so it’s very important to get your settlement loan from a reputable provider. Always check a company’s past client reviews, speak to your lawyer about the company you’re considering, and avoid any loan provider who is not upfront about all of their fees.

Written By Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star.