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Everyone knows that legal matters are expensive, but unless you’ve been directly involved in a lawsuit, you’ve probably never thought about how people afford all of the bills and expenses. The reality is that few Canadians have enough savings put aside to pay thousands in legal fees, medical bills and other costs associated with a legal case; for this reason, many rely on settlement loans to get them through. But what is a settlement loan, and how does it work?
Here we’re going to break down everything you need to know about settlement loans, including when and how you can use them. Let’s start with a list of settlement loan providers in Canada; the companies in the table below have sterling reputations and competitive products. Check out their rates and reviews, and read on for the ins and outs of this market.
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.
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.
Settlement loans come in useful for a variety of reasons, and the funds released by them can be used for:
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:
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:
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.
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:
As with any financing, there are advantages and disadvantages of settlement loans.
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.
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.
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.
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:
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.
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.
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.
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