Understanding Lawsuit Loans in New York: Risks and Alternatives for Victims of Sexual Harassment and Personal Injury
If you’re involved in a sexual harassment, employment discrimination, or personal injury lawsuit in New York, you may be approached by companies offering what they call a “pre-settlement advance” or “lawsuit loan.” While these offers may seem like a lifeline—especially if you’re struggling financially—they often come with sky-high interest rates and hidden risks.
Recently, The New York Times reported on the growing trend of finance-backed companies targeting sexual harassment victims by offering advances on potential settlement money. These advances are being marketed as helpful, fast-cash solutions for victims waiting on justice—but there’s much more to the story.
What Are Pre-Settlement Advances?
Pre-settlement advances are loans given to plaintiffs in anticipation of winning a legal settlement or judgment. These aren’t new. Lawsuit funding companies have been around for years, offering cash advances to individuals who are waiting for a case to settle—especially in personal injury and employment cases.
In New York, these advances are not regulated the same way traditional loans are. That’s because they’re structured as non-recourse advances, meaning if you lose your case, you typically don’t have to pay the money back. However, if you win or settle, you’re expected to pay back the advance plus significant fees and interest—which can sometimes reach an effective annual rate of 80% to 100%.
The Hidden Cost of Fast Cash
To put this in perspective, a credit card with a high interest rate might charge you 20% APR. Some lawsuit loans can cost up to five times that—or more. And because these advances aren’t regulated like personal loans or credit cards, companies are not always required to disclose the true cost in a way that’s easy to understand.
Many New Yorkers dealing with sexual harassment or workplace discrimination are already under tremendous emotional and financial pressure. They may be out of work, behind on rent or mortgage payments, and struggling to support their families. These funding offers arrive at the perfect time—when people are desperate and vulnerable.
Why You Should Think Twice
We understand the financial pressure. A lawsuit can take six months to two years or longer to resolve. If you can’t work during that time, the bills don’t stop coming. But taking on one of these lawsuit loans could mean giving up a huge chunk of your eventual settlement—possibly tens of thousands of dollars more than you borrowed.
Before signing anything, we always encourage clients to explore all their options:
- Can a family member help with a short-term loan?
- Do you have a bank or credit union that offers a personal loan at a lower interest rate?
- Do you have a retirement account or life insurance policy you can borrow against?
- Is it possible to negotiate deferred payments on bills or get local support services?
None of these options are perfect—but they might be significantly less expensive than a high-interest lawsuit advance.
Talk to Your Attorney First
Most importantly: never take out a lawsuit loan without talking to your lawyer first. Your attorney should help you weigh your options and protect your long-term interests. In our New York practice, we make it a point to guide clients through this decision so they don’t jeopardize their future financial recovery.
We’re Here to Help
If you’re involved in a sexual harassment, discrimination, or personal injury lawsuit in New York and are considering a lawsuit loan, give us a call first. We’ll walk you through the pros and cons, and help you make the best decision for your situation and your family’s future.