How Personal Loans Can Help You Pay Legal Fees
The Basics of Personal Loans for Legal Fees
Personal loans for legal fees are typically unsecured loans used to pay legal fees, whether they are for a family law issue or personal injury matter. The lender will review your file before granting a loan and you will be signing a personal guarantee to show that you are personally responsible for paying the loan. While many lawyers do not offer personal loans to cover fees, there are several companies that specialize in offering personal loans to pay for family law or personal injury legal issues . Of course, you can also obtain a personal loan from your bank, line of credit, or credit card. Getting a personal loan can give you the peace of mind associated with knowing that all of your legal fees are covered, and that your lawyer is getting paid in full. When classes settle for you and you have funds to cover the legal fees, the money is simply deducted from your settlement amount or court award.
The Advantages of Personal Loans for Legal Fees
There are numerous benefits to using a personal loan for legal expenses that individuals and couples should consider. These include the ability to use the loan for a variety of purposes, reasonable repayment terms that can range from several months to several years, and quick access to money to pay for legal fees when needed.
In many cases, getting pre-approved for a personal loan is a fairly quick and simple process, with money usually available to use after approval within just a few business days. This can be a great benefit when you have a pressing legal matter that requires immediate funds to pay for legal representation or other related legal expenses.
If you have good credit and are in good financial health otherwise, there are a variety of personal loans available to you that can help you quickly secure the funding you need to handle legal issues without straining your finances or putting a large dent in your bank account.
How to Qualify for a Personal Loan
Lenders generally have a standard set of criteria they look for when considering a personal loan. They will want to determine if you have the ability to repay the loan, if you have a good track record in paying off previous loans, and what risk the lender is taking if they lend you the funds. So, a lender will most likely ask you to submit:
- Your current contact information
- The purpose of the loan
- The amount of the loan
- Any collateral
- A description of your income
- A description of your debts
- Personal, credit, and property information
Generally, if your credit is bad, lenders will shy away from offering you a personal loan. This is not always the case, however, as special loans are available for people with poor credit. If your credit history is clean, it is still important though, as most lenders will want to see that your credit score is at least 620.
Below are some other things loan officers will often times request before they release funds:
Income – lenders often require that you make at least two and a half times the monthly loan payment. There are also maximum caps for income, with some lenders only allowing individuals who make three-hundred percent of the federal poverty level to borrow funds.
Employment – lenders typically require a steady job history, at least two years with the same employer, for example. You may also be asked for a list of previous employers if you do not meet the two-year threshold.
Debt-to-income ratio – lenders want to make sure you can afford to pay back a loan. In doing this, many will look at your income and debt payments collectively. It is generally recommended that you not take on any more than 36 percent of your income towards your debt payments, and many lenders will only approve loans for people at or below this threshold.
Creditors will also probably check out your bank account statements to make sure there is enough cash flow so you can pay them back, and also to look for any overdrawn accounts.
How to Apply for a Personal Loan
The first step in obtaining a personal loan is to research and compare lenders. There are a plethora of online tools available to check out what lenders have to offer. Bankrate and Nerdwallet are both great sites to compare loan products offered by different lenders. When researching lenders, you should consider the rates of the loans offered, the fees associated with the loans, the lender’s reputation and the loan terms (e.g., amount of time until the loan is due). Different lenders will slice and dice your credit score data and weigh it differently. As such, your credit report information and score may look different depending on which lender you’re working with. Once you’ve done your research, apply for the loans that look to be the most promising. Most lenders provide an online questionnaire with questions about your income and existing debt. Based on that information , the lender will then give you an idea of the loan terms you’ll be offered, assuming you’re approved for a loan. You can typically complete the questionnaire within about 10 minutes. Once you’ve received the offers from lenders and selected one of the offers, be sure to complete the lender’s loan application process. The lender will require your identification, contact information, Social Security number, address and employment information. You’ll also need to provide pay stubs and pay information as well as your bank account and routing numbers. The only information you need to provide in order to just receive an estimate is your full name, address, income and the loan amount you’re applying for. These details suffice to provide you with estimates from online loan shops. These estimates include the full range of rates and terms from the site’s partners, but they will not be honored without full application and approval.
Potential Downsides and Risks
Many Magnificient Forms Of Money-A Personal Loan May Cover Legal Expenses
However, there are potential risks and considerations involved in using personal loans to pay for legal fees. One of the most significant issues is the high levels of interest and potential penalties that can be associated with personal loans. According to Bankrate, the most recent national average annual percentage rate (APR) for personal loans is 10.46% and the APRs can be as high as 36% or more with many personal loans. Even at 10.46%, many borrowers who do not have good credit with a sub-prime loan could likely see this interest rate kick in as a credit card company might also offer. So, it’s important to compare rates and terms before taking out any loan, but especially a personal loan. Unlike other forms of loans, a personal loan is an unsecured loan, which means that the borrower does not have to put up any collateral against the loan. One of the benefits of this is that if the borrower defaults on their payments, they can’t take your car/house/etc. However, they will generally experience considerably higher interest rates and lower maximum amounts than they would for a secured loan. A secured loan is where the lender receives some assurance that the borrower is committed, such as placing a lien against the borrower’s car or house. The point is that while a secured loan can go up to hundreds of thousands of dollars, this is much less with unsecured personal loans. There are some high limit personal loans, but they are much less likely than a secured loan. Also, while it’s important to remember that most lenders have different terms and contracts and as such it’s important to look at the terms and ask your lender any questions you might have. With that being said, some personal lenders may charge you an interest rate that is higher than your actual credit score. For example, a borrower may have an interested rate set at 8%, even though their current score is actually 5%. Similarly, some personal loan lenders may inflate your monthly interest rate that you’re paying. For example, let’s say that based on your current credit the monthly interest rate should be 2%. But some personal lenders may instead set a 7% monthly interest rate. Although this may not sound like much, over the course of several years a borrower will pay thousands more. There are also other costs associated with personal loans. Various fees and closing costs will be charged that can sometimes total several thousand dollars. It’s also important to keep in mind that personal loans are not always available to everyone. In some cases, a borrower may want to consider applying for a co-signer loan or using a cosigner to decrease the amount they will have to pay on their legal fees.
Alternatives to Personal Loans for Legal Fees
There are many ways to finance the costs of a legal case other than with a personal loan. While a personal loan for legal fees can be appropriate in many circumstances, some litigants find themselves with an alternative funding source. Some of these court costs funding possibilities include:
Attorney payment plans. Some lawyers may offer installment payment plans to allow a client to pay his or her legal bill over time. In this way, the client can avoid paying all at once and can essentially finance himself or herself at a low-to-no interest rate. While this option is not available in every case, and lawyers are not necessarily obligated to accept installment payments, it is a good starting point for those seeking to finance their legal fees on their own. Of course, you will still need to repay this debt and it may potentially damage your credit rating.
Legal aid. For those litigants who qualify , legal aid may provide representation without the need to pay an attorney any fees. The American Bar Association provides a short guide on Finding Free and Low-Cost Legal Services.
PEP legal plans. If an employer provides a group legal plan, you may be able to have certain legal services at no charge or at a reduced cost. Be sure you know exactly what your plan includes, as the scope of coverage, including the type of services covered, varies between PEP plans.
Deferring payments. An attorney may be willing to defer some or all of his or her fees until the conclusion of your case if it is expected that the client will be a prevailing party and entitled to recovery of attorney fees from the other side.
Using savings. While most people are not in the situation of having a lot of money saved up and ready to use at any time, if a person does and is able to use this as a source of funds to pay a lawyer, it is probably better than getting a personal loan for legal fees.