Basically a lawsuit advance is a payment made to the to the requesting party on an anticipated future settlement. Essentially, it's designed to provide all the necessary funds prior to settlement for plaintiffs going through difficult financial problems which are caused as a direct result of the damage brought about by their case. In many cases, specially the ones which are brought against big corporations which have the funds to fight a case for years if necessary, a lawsuit advance can literally mean the difference between giving up and losing your case, having a lawsuit advance issued to the plaintiff going through hardship would provide all the financial means necessary to go ahead with the lawsuit.



Sometimes plaintiffs worry about the risks which involve taking such financial instrument, a lawsuit advance. After all, almost any sort of financing carries risks for both parties, the lender and the borrower; for instance, mortgages carry a risk for the lender if the mortgage falls into default or the borrower fails to repay the loan. Even though mortgages are secured by the property for which it was issued (collateral), foreclosing on a property and then having to sell it again to recover the lender's investment is not a profitable practice. On the other hand, for the home buyer, the mortgage is a risk if he/she, or as a couple, fail to repay the mortgage or cannot make the scheduled mortgage payments. If a homeowner fall too far behind, the mortgage goes into foreclosure, the homeowner is forced to move out of the property, and the home buyer's credit is ruined.

When taking on a lawsuit advance it is important to do some research since many legal finance institutions that supply lawsuit cash advance loans are somewhat controversial due to the high margin of interest they charge. In some extreme cases, controversial companies have been known to charge as much as 100% per year; but as previously argued by these companies this interest rate is justified, since the lender stands to lose most of or even the entire amount if the plaintiff's legal case does not resolve favorably.

As you can see litigation is an expensive process, especially if the case is brought against a company which can afford to delay the case for several months in which case the plaintiff doesn't receive any sort of financial aid. For most people with personal injury claims, a lawyer is hired on a contingent fee basis, which means that the attorney will not charge a dime unless the case is resolved in favor of the plaintiff. Then, any attorney fee that's required is a percentage of the money recovered. The law firm advances money for the cost of litigation until the case is resolved. (For ethical reasons, lawyers cannot lend money to their clients.)

People who have been severely injured in accidents due to the negligence of others can be financially devastated during the process. Many are put out of work for weeks or months, leaving them with absolutely no income to provide for their dependents while they recover from their injuries and financial hardship. Unfortunately, since most of the US population has a relatively low credit score, these victims often lack the proper income or credit history to qualify for a traditional loan. Even if they could, conventional loans require monthly payments which can be a further burden to their situation, that is why that individuals who are paying all of the litigation fees "out of pocket" need to incur in lawsuit advances.