If you’ve ever been in a serious car accident, it can be a very scary and disorienting experience.
What happens next, especially if your car is totaled or if you’ve suffered any personal injury, can be a scary process to navigate. You’ll be thrust into a negotiation with a professional negotiator at the car insurance company and expected to be able to hold your own – it’s an impossible task.
The problem is that you’re negotiating from a difficult position. If you’re hurt, you need money to pay medical bills and ordinary expenses. If your car is damaged, it needs to be fixed. If it’s totaled, you need a new car. All of these things have an urgency that puts you in a difficult position.
The challenge is that you won’t find an insurance company paying an advance on a claim before it’s been settled.
That means you’re expected to negotiate while all these other problems are hanging over your head. It’s unfair!
This is why there are companies who will give you a car accident “loan” as a way for you to get cash in your pocket right now while the legal process runs its course.
I put the word loan in quotes because technically it’s an advance on a settlement, rather than a literal loan, so the rules may be different. Here’s how they work.
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Editor’s Note: I’m not a lawyer and this is not legal advice. If you need legal advice, consult with an attorney.
What is lawsuit lending?
A car accident loan is a type of lawsuit lending. It’s similar to a personal injury loan where the cause is a car accident.
Lawsuit lending is a category of short term “lending” where you can get money to help with your lawsuit. Lawyers are expensive and while you may have a strong case, you may not be in a strong enough financial position to pursue it.
Point of Clarification: Throughout this post, we will use the term “car accident loan” and refer to the “advance” as a “loan” because that’s the convention of the industry. There is an interest rate but it’s not technically a loan, it’s an advance on a future settlement so it follows different rules. We, and the industry, still calls it a loan.
Should you file a car accident lawsuit?
I’ve only ever been in one serious car accident before. I was driving my Toyota Celica between office buildings when a red Dodge Durango ran a red light and hit me as I was turning. It was a relatively slow collision and I suffered very little physical injury but my car was totaled. All the air bags were deployed, several panels were crushed, and my front axle was bent (if not broken).
The other driver’s insurance company offered a settlement that was more than what I paid for the car and since I didn’t have any personal injuries, I accepted it. I was lucky they didn’t lowball me.
It becomes trickier when there are injuries involved. With a car, you can calculate the value of the car. With injuries, especially if they impact your ability to work, it becomes much harder. It’s very hard to put a dollar amount on pain and suffering.
The car insurance company may offer you something that you feel is unfair. You may go through negotiations but not get a resolution that makes you happy. From there, you might start talking to a lawyer to see if you might want to file a personal injury lawsuit.
The tricky part with lawsuits is that you now have to pay part of it to your lawyer. It also means the process will take several months because lawsuits are not fast especially since there will be various investigations. Fortunately, lawyers are experienced with this and they can help you make this decision.
How to qualify for a car accident loan
Not every accident qualifies for a car accident loan. The key hurdle is that you must have hired an attorney and they must have filed a lawsuit on your behalf. If you don’t have an attorney or that attorney hasn’t filed a lawsuit, you won’t be able to apply for a car accident loan.
This hurdle exists these companies will see if if an attorney, who would be paid more if a settlement is reached, is willing to take your case.
When you apply, you have to bring these details and a company will determine if you can get funding. They will typically speak with your attorney to get all the details and then issue you funds relatively quickly (just a few days).
Note that you don’t have to reach the point of having a settlement to get a loan. As long as you’ve suffered an injury and have filed a lawsuit, they can determine how much of an advance to give you.
Are car accident loans worth it?
It really depends on the terms of the loan, the characteristics of your case, as well as your financial situation. Auto accident loans can be useful for paying expenses you accrue as a result of the accident. This can be anything from medical expenses to your rent or mortgage, especially if the accident impacted your ability to work (and you don’t have other insurance covering you).
Also, a car accident loans can put you in a better financial footing so that you may not rush to accept a quick settlement. Your attorney may be able to take some extra time to put together a stronger case and get you a better financial result.
Another wrinkle in this is that if you end up losing your case, you don’t owe anything. This is the flip side of how the “loan” is an advance. If you lose, you owe nothing.
The key downside is that these advances are quite expensive. They’re expensive because it’s an advance on the settlement and that settlement may not be reached for quite some time. Part of it is because if the settlement falls through or it goes to trial, you may not have to owe anything if you lose your case! The interest rate is quite high.
I used a company’s calculator to get a sense of rates and they said that a $10,000 advance that you would expect to pay back in six months would cost you, on average, $14,300. That’s very expensive.
Alternatives to car accident loans
If you want to pursue this but don’t want to pay these high rates, you could consider going the route of getting a personal loan. Personal loans are a good alternative because they are not nearly as expensive as a car accident loan and there are personal loan options for borrowers with poor or no credit.
Personal loans are expensive compared to other types of loans, since they aren’t backed by collateral, but they are far cheaper than a car accident loan. That said, a car accident loan can be offered fairly quickly (as little as 24 hours after approval) whereas a personal loan has to go through the usual underwriting process.
If you are looking for personal loans, Monevo is a personal loan marketplace that can get you quotes in 60 seconds.
Finally, remember that with a personal loan, you have to pay it back even if you lose your case.
Car accident loans are very expensive and you have options – make sure to research them!