Litigation loans, also known as lawsuit loans, are a curious mystery to many people outside of finance or law. But that shouldn’t be the case. As a superb and much needed litigation funding tool, the litigation loan can be used by anyone wanting to launch litigation.

The litigation loan is used in many countries around the globe and this article will explain how the lawsuit loan in Canada is used. It will also cover the good and the bad of lawsuit loans, how to look for litigation funding in Canada and explain how exactly lawsuit financing works for the individual.

Bear in mind that the litigation loan comes under many names. In this article, we will use a variety of names. Here are a few:

• Lawsuit Loans
• Lawsuit Settlement Loans
• Litigation Financing
• Litigation Funding
• Litigating Lending

Though lawsuit lending is a complex issue, you need not to be scared of the legal vernacular and formalities. In the end, lawsuit financing is there to be used by those who need it.

What is litigation loan and why it matters?

So, let’s look in more depth at the traditional uses of litigation loans as well as why they are needed.

In Ontario, Canada the lawsuit loan is a financial tool to help a plaintiff cover the costs of a lawsuit that they are filing, or have already filed. Though there are a variety of reasons for requesting litigation funding in Canada, personal injury is by far the most common reason. Therefore, here you will find the explanation of litigation loans for people launching a personal injury action.

What is personal injury?

While there are many types of personal injury, most occur in a workplace or public place, like a highway or institutional. To launch a personal injury lawsuit, a person must suffer some form of injury or disability. Here are two common examples:

• An employee is told to tackle a dangerous job and is not given the correct safety equipment required. The employee suffers an injury as a result.
• A road user suffers injured when a dangerous driver crashes into the back of their vehicle.

Personal injury lawsuits are most commonly launched after a person suffers a debilitating injury that keeps them out of work or reduces their quality of life. Indeed, the plaintiff will seek damages for an injury based on the grounds that they have been stopped from working or their lifestyle has been impeded. There are many reasons why personal injury lawsuits may be filed and often litigation financing is necessary.

When is litigation funding required?

An individual can apply for litigations loans at any part of the lawsuit processes prior to reaching a lawsuit settlement agreement. This is why this form of financing is also called a lawsuit settlement loan. Importantly, a lawsuit settlement loan should be sought to cover costs only when the outcome of the legal process is primed in the plaintiff’s favour and a cash settlement is likely. This way, the plaintiff can be confident that the litigation loan will be paid back to the litigation lending company in the manner agreed upon.

How do Litigation Loans Work?

At its most simple, a lawsuit loan or litigation loan is a cash advance that those in the middle of a personal injury lawsuit require. Litigation loans are a common resource and many Canadians use them every year. But, as we have already touched upon, they should only be used by those who are likely to win their action.

If you are considering taking a lawsuit loan, you must be careful.

While litigation loans are helpful tools to get through the sometimes convoluted and long-winded personal injury process we have in Canada, they can also end up costing a great deal of money. Taking out a litigation loan is essentially a bet against a future legal windfall; even if you do not win your lawsuit you still have to pay back the lawsuit loan.

Litigations Loans: How Litigation Funding in Canada Works in Practice

As lawsuit funding is a relatively new financial tool in Canada, not everyone is aware of exactly how they work in practice. Here is the process most people go through to receive their litigation loans from litigation funding companies.

When an individual is injured in an event that is not their fault, they can file a personal injury lawsuit. Lawsuits cost money, so they will then apply for lawsuit funding with one of the trusted litigation funding companies.

When litigation financing companies receive a case, they will look at a number of factors to decide whether they are prepared to offer a lawsuit settlement loan. The number one concern that the company should have is whether the plaintiff will win the case. The company’s lawyers will review each personal injury complaint, looking at both sides of the argument, to decide whether a ruling will be made in the plaintiff’s favour. If it is not, they are unlikely to award the lawsuit settlement loan.

Once the lawsuit financing company has decided that a case is likely to be won, it will then carry out various calculations to decide how much a plaintiff should receive. Remember here that the majority of personal injury claims are settled before trial, or before the decision of the judge.

The litigation lending company will then offer a fixed amount based on the likely payout. The plaintiff will then agree to repay the loan in addition to a “funding fee”; a slice of the lawsuit settlement payout.

If you are applying for the loan, you should ask yourself several questions prior to signing any agreement.

• Can I afford to pay this lawsuit settlement loan back if I do not win the case? Bear in mind that some companies offer no win no fee lawsuit financing deals.
• Is the funding fee a reasonable amount?
• What are the interest rates on my loan and can I afford them?

How much does paying back a lawsuit settlement loan really cost?

Before you agree to sign any lawsuit settlement loans, you must read the conditions and reach a full understanding of the terms you are borrowing under. If you do not, you may find yourself in financial trouble.

Firstly, check the interest that you should be expected to pay on the funding fee. This is important because the costs can quickly rack up and the personal injury process can be long. While most lawsuit financing companies in Ontario charge between 2 percent and 4 percent on their loans, rates may differ. And while 2 to 4 percent does not seem like much, it could double the amount you are expected to pay back within one year. If you do not receive your lawsuit payout for a year, can you pay this back?

There are additional costs that must also be considered. A lawyer’s fee which is often upwards of 30 percent of the eventual lawsuit settlement payout, court costs and medical costs must also be factored in.

At the end of the process, you might be paying back more than you expected.

Litigation Loans: The Good and the Bad of Funding Your Lawsuit

Before deciding to search out litigation funding in Canada, you should know the good and bad about it. Like all other financial decisions, you make in life, the litigation loan has benefits and drawbacks. Here are the most important:

PROS

You Can Win a Lot of Money: Funding from a lawsuit loan can lead to a courtroom win that offers a plaintiff a great amount of money. Even after the money paid out in fees, litigation loan funding can still provide tens to hundreds of thousands of Canadian dollars, depending on the severity of the plaintiff’s injury.

No Win No Fee Possible: Many lawsuit loan companies offer no win no fee lawsuit loans meaning that if your lawsuit is not successful you will not have to pay for the lawsuit financing. This is because lawsuit loan companies assess your legal case before they offer to finance it meaning that they only agree to finance the cases they’re almost certain will win.

Credit Scores Are Not Deciding Factors: Unlike other financial packages, the litigation loan is not based entirely on your credit score history. The availability of litigation loans is dependent on the likelihood of the litigation’s success. That said, there are still some Canadian lawsuit loan companies that check your credit.

CONS

Not Everyone Qualifies for Litigation Funding: Experienced lawsuit loans companies do not take risks on cases they are not likely to win. There is very little in it for a company. If you do not qualify for litigation funding then you may not be able to launch a lawsuit at all. You can still go to other lawsuit loan companies but you may have to move towards the less reputable end of the market, a decision that brings its own risks. Remember that not qualifying for a litigation loan at a reputable litigation funding service would suggest that you are unlikely to be win your case.

Costs can Mount: As we touched upon earlier in the blog, we are aware that the costs of a lawsuit loan can mount. Indeed, the cost of a lawsuit settlement grows as lawyers are hired, court fees are paid and the case takes months or even years to reach its close. The time and the likely amount of money you will receive must be calculated into your decision on seeking for litigation funding.

Lawsuit Financing Companies: How to Find the Best Litigation Loan Deal

So you have decided that you definitely want to access a lawsuit settlement loan and are now looking for litigation funding in Canada through litigation funding companies. Here are some tips to help your search find success.

Question Application Fees – Different lawsuit settlement loan companies in Ontario have different rules. One of these is the application fee for a litigation loan. The application fee is a one-time cost that does not guarantee you will receive your lawsuit loan. This should be remembered.

Compares Rates of Interest – Remember the funding fee you agree to pay a lawsuit loan company when you sign the contract? Well, they have different rates of interest. Find out about these interest rates before you sign a deal. If the rates are astronomic then they should be avoided.

Check How the Funding Fee is Compounded – Just like your mortgage interest rate, your litigation loan will be compounded. Check how often this is done because the more frequently the lawsuit loan is compounded the more you will pay out in the end.

Some additional tips on how to find a lawsuit settlement loan company that you can trust.

Value Over Volume – It is important to investigate looking around for the most reputable companies that offer lawsuit settlement loans; after all, this is a major financial decision you are taking.

Picking the companies that focus on value over volume will help differentiate between the quality lawsuit loan companies and those who are there for the fast buck.

Investigate Experience and Experiences – Like any other business, lawsuit loan companies vary wildly in service and quality. Unfortunately, there are even litigation funding companies that take plaintiffs for a ride. By checking in on the company’s experience, you are able to get a better grip on the sincerity and commitment of the company. If a lawsuit financing company has decades of experience under their belt, then they can most likely be trusted.

Litigation Loans, Lawsuit Loans or Lawsuit Financing

Hopefully, it should be clear that the litigation loan, lawsuit loan or lawsuit financing – whatever you decide to call it – is both a useful and for some vital tool, which requires care when using.

For those people who require litigation loans, one rule of thumb should be remembered: unless you are almost certainly going to win, they are best avoided.

The fact that most lawsuit loan companies will tell you your likelihood of winning a case before you agree to their terms of litigation lending means that you should have the information required to make an informed decision.