Accidents can be devastating not only physically and emotionally but financially as well. An individual might be out of work for several months, a year, or even longer. Medical bills may have gone to collection and the savings account might have been drained a long time ago.

This could lead an accident victim to borrow money through a pre-settlement loan. It’s important to understand the implications of the loan and how usury laws may apply.

What are usury laws?

These are designed to prevent financial institutions from charging excessive interest rates on loans. In Georgia, the cap for the majority of loans is 60 percent. While in most circumstances this will protect consumers, it may not necessarily be the case when it comes to a pre-settlement loan.

How do usury laws impact pre-settlement loans?

Financial companies who lend money to accident victims awaiting a settlement can usually avoid usury laws for a couple of reasons. One is that they aren’t typically referred to as loans. Rather, they are called cash advancements or investments.

Also, these advancements are given in anticipation of a settlement but don’t have to be repaid if the client doesn’t win the case. So the company “protects” itself from losing out by charging high interest rates and fees. Yet the fact remains they usually come out on top.

Although a pre-settlement loan can help meet immediate needs, some of these finance companies will take advantage of the opportunity.  So in the end a client could end up paying substantially more than the amount they got in the loan.

But again, usury laws don’t apply here, so there isn’t much that borrowers can do. And the longer it takes to settle, the more the injured party could owe. Talk to your attorney about your options to cover expenses while waiting on a personal injury settlement.

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