Worried that a lawsuit loan will tank your credit score?
This may be the largest misconception surrounding lawsuit loans. Most people think that pending litigation loans operate just like a personal loan or credit card. They do not.
These advances interface with your credit report in a manner totally unique from other products.
Here’s the problem:
Consumers make poor choices about whether to accept the funding, how much to accept and how to repay it because they have an inaccurate understanding of how it works.
Below, the biggest credit-related myths around pending lawsuit loans get cleared up.
What you’ll discover:
- How Pending Lawsuit Loans Actually Work
- The Credit Score Myth
- The Mistakes Borrowers Make
- What Lenders Actually Care About
- How To Use The Funding The Right Way
How Pending Lawsuit Loans Actually Work
A lawsuit loan is a cash advance against your future settlement.
It’s not a loan. There are no monthly payments. There are no credit inquiries and no employment verification. The funding company is betting on the case. Not the borrower.
This is a key point most borrowers miss.
If you win, the funding company is reimbursed from your settlement. If you lose, you owe them nothing. The reason these advances are possible is that they are non-recourse, so the risk is on the funding company.
That’s why lenders who provide Ocala, FL lawsuit loans focus entirely on the merits of your case. It doesn’t matter if your FICO rating is high or low. What they care about is the proof of liability, your injuries, your medical records and the estimated worth of your lawsuit.
Disclaimer: A lawsuit loan pending is actually considered a non-recourse cash advance — NOT consumer credit. That little difference means everything for your credit report.
The Credit Score Myth
This is where most borrowers get it wrong.
Many people think that if they get a lawsuit loan their credit score will be affected because the lender will perform a credit check. In fact, it’s just the opposite. Industry insiders report that pre-settlement funding will not appear on your credit report, therefore it does not impact your credit score whatsoever.
Here’s why that matters:
- There is no hard inquiry when you apply
- There are no monthly payments reported to credit bureaus
- There are no late payments to ding your score
- There are no collection actions if you lose your case
If you already have bad credit. This is excellent news. Having bad credit won’t prevent you from getting approved. Plus a new advance won’t further damage your score.
That’s what sets pending lawsuit loans apart from nearly every other financial product on the market. Personal loan debt has gained 64% in the last five years. Every single one of those personal loans is reported to credit agencies. Lawsuit loans aren’t.
The Mistakes Borrowers Make
Pending lawsuit loans don’t affect your credit, however plaintiffs still make numerous costly errors.
Borrowing Way Too Much
The first mistake is borrowing more than you actually need.
Lenders will sometimes give you a much larger advance than you ask for. The more money you borrow, the more interest accrues. Lawsuit loan rates can be expensive — from 27% to 60% annually for most cases.
Borrow only what you need to pay for necessities such as rent, medical expenses, food, and utilities.
Skipping The Fine Print
The second mistake is not reading the contract.
Some lawsuit loan companies charge compounding interest. With compounding interest, the longer your case drags on, the larger your repayment amount grows. Other companies charge simple flat rate fees. The cost difference between these two options on a 24 month case can be thousands of dollars.
Always check whether the rate is simple or compounding before you sign anything.
Not Asking The Attorney
The third mistake is not looping in the attorney.
Your lawyer has witnessed this hundreds of times before. They know which companies offer reasonable terms and which ones to steer clear of. Cutting that meeting out of your process is skipping a step. A great lawyer will work with you to get better terms or point you toward a reputable lender.
What Lenders Actually Care About
If lenders aren’t checking credit, what are they checking?
The strength of your case. That’s it.
Once you apply, the funding company will reach out to your attorney to learn about your case. They will review:
- Liability: Who is at fault, and how clear is it?
- Injuries: How serious are they, and is there proper documentation?
- Insurance coverage: Is there a deep enough pool to pay out a settlement?
- Case stage: Has liability been established yet?
- Estimated settlement value: What is the case realistically worth?
Submit an application if your case checks all the boxes. You won’t get approved if your case is weak, regardless of credit score.
That’s why you see some plaintiffs with horrible credit easily approved and plaintiffs with excellent credit get denied. It’s all about the case.
How To Use The Funding The Right Way
Judgment Pending lawsuit loans can save your life. Provided you utilize them properly.
Here’s a simple framework that actually works:
Step 1: Find out exactly how much you spend each month. Include your rent, utilities, groceries and medical expenses. This is the minimum you will require during the pending resolution of your case.
Step 2: Only borrow what you need to pay for those expenses. Don’t take out $25k if you only need $5k.
Step 3: Evaluate at least 3 companies. Inquire as to simple vs compounding rates, all fees and total payback amount. Insist on getting everything in writing.
Step 4: Consult your attorney before signing anything. They will catch things in the contract you may have otherwise overlooked.
Step 5: Spend the money on necessities only. This money is a lifeline to keep you surviving – not spending on new items or vacations.
That last reason is important. The reason you take out a pending lawsuit loan is so you have breathing room and don’t accept a lowball offer.
Final Thoughts
Pending lawsuit loans are one of the most misunderstood financial tools out there.
The good news? They can be beneficial to you once you know how they work. The credit-score damaging panic that turns away most borrowers is unnecessary fear. Your score won’t be impacted and your future borrowing power won’t be compromised.
To quickly recap:
- Lawsuit loans are non-recourse cash advances, not traditional loans
- They don’t affect your credit score or appear on your credit report
- Lenders care about your case, not your credit history
- Borrow only what you need and read the fine print
- Always loop in your attorney before signing
With the fundamentals in place, a pending lawsuit loan buys you time and breathing room to pursue the settlement you deserve.
