Car Accident Loan: What Settlement Funding Really Costs
Updated · By the Law Figures editors
General information, not legal advice. Laws differ by state and change, so check the sources below or ask a lawyer licensed in your state before you act. Legal disclaimer
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A car accident loan, usually called pre-settlement funding, is cash a company advances against your future settlement. You repay it only if the case pays, which is why it's often not legally a loan, but the charges grow every month until the case ends. On a long case, you can owe close to double or triple what you received, and it comes out of your share.
Here's what a $5,000 advance costs at a 3% monthly rate, by how long the case takes:
| Months until the case pays | Charges on the growing balance (compound) | Charges on the original amount (simple) |
|---|---|---|
| 6 | $5,970 owed | $5,900 owed |
| 12 | $7,129 owed | $6,800 owed |
| 18 | $8,512 owed | $7,700 owed |
| 24 | $10,164 owed | $8,600 owed |
| 36 | $14,491 owed | $10,400 owed |
The 3% rate is only an example. Contracts vary a lot, and some add application, processing or broker fees. Which states regulate this funding, and how, also varies.
Run your own numbers
Use the amount, the monthly rate and the way charges are figured from the contract. Then try a longer wait, since cases often take longer than expected.
Lawsuit loan cost calculator
- Owed at payoff
- $8,512
- Funding charges
- $3,5121.70x the advance
The payoff comes out of your share of the settlement, after the lawyer's fee and costs. Some contracts add application or processing fees, which you can add to the amount advanced.
At the defaults, $5,000 at 3% a month, compounding for 18 months, comes to about $8,512, or 1.70 times the advance. Switch to simple and it's $7,700. Add any upfront fees to the amount advanced to see their real cost.
Where the payoff comes from
When the case settles, the money is paid out in a set order: the lawyer's fee and case costs first, then medical liens, then the funding company, and you get what's left. Try your settlement in our car accident lawyer fees calculator first, then subtract the payoff from this one. If a funder's payoff would leave you with little, that's worth knowing before you sign.
Why your lawyer can't lend you the money
Lawyers can't give clients financial help for living expenses while a case is pending. ABA Model Rule 1.8(e), which states have adopted in their own versions, allows a lawyer to advance court costs and case expenses, but not rent or car payments. That's why funding companies exist. Your lawyer can still review the contract, and most funders need the lawyer's signature.
Alternatives to try first
- PIP or MedPay on your own policy, for medical bills.
- Medical providers who will wait. Some agree to be paid from the settlement.
- Short-term disability through work, if you have it.
- A smaller advance. Take only what you need. Every dollar grows.
- A payment plan with creditors, explaining the pending case.
Questions to ask before you sign
- Is the rate monthly or yearly, and is it simple or compound?
- Is there a cap on what I can owe?
- What fees are added at the start?
- What happens if the case settles for less than expected, or loses?
- Does my lawyer have to sign, and has my lawyer read the contract?
Compensation for a physical injury generally isn't federal taxable income (26 U.S.C. § 104(a)(2)), and the funding payoff doesn't change that. Funding charges aren't usually deductible.