What you need to know about a Personal Injury Loan
Hi, I’m Jared Richards. I’m one of the partners at Clear Counsel Law Group, and one of our readers has asked “What is a personal injury loan and should I get one?” The short answer is, I would say 90 to 99 percent of the time personal injury loans are the devil. They’re not good. Let me explain some of the basis here.
When you get into an accident and you’re hurt, and it sounds weird to a lot of people, but it is the way the law works, is that you have a property right. You have a property right in your injury, and there are some people out there that are willing to lend money in exchange for a lien on that property right. Sometimes when somebody gets hurt there are companies out there that will offer them a loan in exchange. Let’s talk about what the nature of this loan is.
It has some good things and it has some horrible things, usually. The good thing that is in most of these loans, every loan is different so you have to look at the fine print, but most of these loans are what we call non-recourse loans, meaning that so long as you don’t otherwise run in default of a loan which, you have to look at the fine print, we’d see what that means.
If you lose the case generally you do not have to pay back the loan. That’s what non-course means. The only recourse the lender has, the only recovery he has, is against the lien that he gets put on your case. He doesn’t have one against you directly. Now, that is good in general for borrowers because if, for whatever reason, the jury comes back with a low settlement or a low award that doesn’t pay off the loan, or heaven forbid you actually lose the case, you don’t have to pay back the lender, so that’s good.
The bad is this, that essentially these are hard money loans and the lenders charge outrageous interest rates. The most reasonable interest rate that I’ve seen is about 38 percent. The more common I’ve seen is 10 percent a month. Don’t be fooled. If you see somebody offering you 10 percent it’s probably 10 percent a month, which means 120 percent a year.
The worst that I’ve seen, and I don’t want to name names, but I really want to name this name, but I won’t, is 240 percent, 20 percent interest a year. Other things we have to look at are the underwriting fees. Some charge underwriting fees. I find that most that offer 10 percent don’t charge an underwriting fee. The one that was charging 20 percent a month charged a 50 percent underwriting fee.
I’ve seen other underwriting fees from fairly reasonable, I think, of 100 bucks, or a couple hundred bucks to thousands of dollars. The next question is, “Should you get a loan?” I would say 95 percent of the time the answer is “No.” These loans are so expensive and the frustrating part that people find is yes, it is using your asset that you have, and I hate to call it an asset but under the law that’s technically what it is.
Your injury claim, you’re using money that you will eventually get, but you’re using it now, and you’re using it now at a very expensive rate, so that by the time that you get to actually settlement and you’re looking to what you get in your pocket, well, you’ve already gotten some of it in pocket, and you’ve already spent it.
In order to get that into your pocket, you have purchased a loan that is so very expensive, sometimes doubling, tripling, quadrupling, the amount that you borrowed to begin with. What are situations where you might need it? I’ve only found two where I think it might make sense.
The first situation is, I’m thinking of a specific case, where the father was the sole breadwinner and he was injured to the extent that he could not work. His family would be out on the streets because he wasn’t able to work, and we helped find him a loan that was the best interest rate that I could find, and it supported his family for a few months, not many, but a few months, while we were trying to settle the case.
There may be an occasion where you need certain treatment, or let’s say you need to go to another state to get treatment, and the only way that you can have your room and board is borrowing against your case. I can see that may be justifiable, and remember, this is not in every situation, this is in case-specific situations.
I would tend to advise everybody else “Don’t touch them.” They’re not good. They’re very expensive. They’re going to leave you dissatisfied, and they make settling the case at the end sometimes problematic. I won’t go into all of that, maybe in another video, but in general I think that hard money loans on your case are problematic.
People should avoid them, but there are a few situations where it might be justifiable. I would talk to your attorney if you’re thinking about doing that. I certainly would not rush in, and I would really act with caution and try to avoid them. Thanks for watching and we’ll see you in another video.