What if your lawyer wants you to take out a litigation loan in your personal injury claim?



Is this scenario familiar to you? You go to a big law firm to represent you in a personal injury matter. They prepare the initial paperwork. And now you are presented with a litigation loan agreement. It’s a long document that basically says the law firm will arrange a loan for you to fund the costs of your claim.


Should you agree?


Legal costs: a little background first

When you bring a compensation claim, there are still legal costs…even if you go to a No Win No Fee firm.


One category of legal costs is your lawyer’s professional fees. No Win No Fee firms don’t charge you professional fees until your claim is successful.


The second category of legal costs is less well known and is called “disbursements”. For example, if a medical expert has to prepare a report on your condition, they will charge your lawyers, usually, around $3,000 to $5,000. These disbursements are payable while your claim is still underway, and payment cannot be postponed until your claim is successful. So, who pays for this?


Some firms say that you either pay upfront for disbursements, or you take out a litigation loan which they will arrange for you.  If you pay upfront, you face the risk that you might not ever recover these costs. But there are drawbacks to taking out a litigation loan as well. 


To be very clear: at Denes Lawyers we don’t ask you to do this, we pay for everything.


What’s the problem with taking out a loan to cover disbursements

The first problem is that the lender charges really high interest rates. Way more than a bank. Eventually you have to pay this, so your settlement amount will be less.


Secondly, if your firm asks you to take out a loan, you have to wonder why. The answer is this: they say they are experts in personal injury law, but in reality, they are not willing to take any risks by investing in your claim. If your claim is unsuccessful, it won’t cost them anything.


Finally, if you still decide to go with a firm that wants you to take out a loan, here is a word of advice: think about what happens if your claim is unsuccessful or if you decide to change lawyers. For example, if your claim fails, can the lender still come after you for the money you borrowed? Or, what if 12 months down the track, you realise you don’t like or trust your lawyers anymore? If you change lawyers (which you are entitled to do) can they force you to repay the loan amount even though your claim is still on foot?


We pay for everything and we don’t charge interest

At Denes Lawyers, if we decide to take on your case, we cover all expenses. We have had cases where our investment is no more than $2,500 as well as cases where we covered about $50,000 in costs.


This means if you choose us, you really don’t pay anything until you win your case.


What happens if you signed a litigation loan agreement but now want to change lawyers?

Before you change lawyers, give us a call on (07) 3063 2268 or email info@deneslawyers.com.au and we will be happy to look at your documents and advise you what’s the best way forward.