A specialised personal loan allows you to borrow up to 30% of the expected settlement and has a flexible repayment structure. With a standard personal loan, you can borrow up to $50,000 unsecured or $100,000 secured.
How can I pay my legal fees with a loan?
There are 2 options if you’re looking for a loan to cover legal fees. The first is a standard personal loan. With a personal loan, you can borrow up to $50,000 unsecured, or up to $100,000 secured. Personal loans are generally flexible, allowing you to use the finances however you wish. The funds are paid in a lump sum and you make repayments, inclusive of interest and fees, for the duration of the loan. Most personal loans offer terms from 1 to 7 years.
The second option is a personal loan specialised for financing your legal fees. It may be available only for certain types of cases, such as family law or contested probate proceedings. With it you should be able to borrow up to $100,000, and in some cases even more, to cover legal fees and associated costs. You’re generally able to borrow a maximum of 30% of your expected settlement in court. The funds are then directly paid to your lawyer.
The loan may also be secured against your expected settlement. These loans come with a different repayment structure and loan terms. Repayment structures may differ based on the lender. In some cases you’ll be expected to repay the loan only at the end of your settlement. The loan term may also be shorter than personal loans, and will extend until the settlement is made.
How does a specialised legal finance loan differ from a personal loan?
With legal finance, your lender works directly with you and your lawyer. They cater directly to your individual circumstances and so offer different features from your standard personal loan.
When you apply for legal finance, you need to provide details about your case. This ensures that the amount you’re approved for is tailored to your individual circumstances. Once you’ve been approved, the funds can be paid directly to your lawyer. These loans can also cover associated fees, not just legal fees. This can range from property valuations to accounts to financial advice and the repayments of other debts.
What can I use the funds for?
With personal loans, you can use the funds for anything you like. Be upfront with the lender and let them know how you plan to use the funds.
With legal finance, you can use the funds for anything covering the legal matter. This is not limited to legal fees. Outside of paying your lawyer for their services, you may be able to use the funds for a plethora of related expenses. This can include alternative dispute resolution, fees associated with valuing and financial advice. You may also be able to use a part of the loan for personal reasons. This includes repaying other debts, and in cases of divorce, renovations which will increase the price of your home before you sell it.
How can I compare my legal finance options?
When comparing your legal finance options, you should consider:
- Does the loan amount cover my legal costs? Check the minimum and maximum borrowing amounts. This should help you understand whether or not the loan will give you sufficient financial coverage. You can also speak to lenders to get a better idea of whether the loan amount is suitable for your needs.
- Is the loan term sufficient and does the lender offer term extensions? You need to ensure you get a loan for the duration you need it. Anything shorter, and you’ll be left out of pocket and struggling to pay your bills. Anything longer and you’ll be paying interest and fees for money you may not need.
- Is the loan secured or unsecured? This is especially important if you don’t have an asset to offer as security. If that’s the case, an unsecured loan may be the best option.
- What is the repayment structure? Do you have to make monthly repayments, or will you only have to repay the loan after the settlement? Choose a loan you’re certain you can pay for.
- How much does the loan cost? In addition to the loan principal, you should consider interest and comparison rates. The comparison rate is presented as a percentage and it will give you an indication of the true cost of the loan. Comparison rates are inclusive of interest and associated loan fees. Checking the fees is important as some loans come with low interest rates, but high fees. This drives up the cost of the loan and may offset the savings you make with low interest rates.
- Will I receive the funds in a lump sum or does the lender offer revolving credit? If you want funding on a revolving basis, then a lender which offers a line of credit may be the best option.
- Am I eligible for the loan? Apart from your credit score, income and other financial details, you need to consider whether the lender provides funding for your case. Not all cases are covered by legal loans, so you will have to take that into consideration. You should only apply for a loan if you tick all the boxes and meet the lender’s minimum requirements.
- Does this loan cater to all my needs? Whether it’s paying your lawyer or for related personal needs, is this loan giving you sufficient cover?
Am I eligible for legal finance?
Your eligibility will depend on the type of loan you apply for and the lender in question. For standard personal loans, you will generally need to be:
- Over the age of 18.
- Either an Australian citizen or permanent resident.
- Have a good credit score.
- Be receiving regular income over the minimum threshold.
- Be able to provide documentation to prove your ability to repay the loan.
For a specialised legal finance product, it’s likely that the lender will ask for security. This security will be the settlement you’re going to receive. The lender may not approve your loan if it’s unlikely or unclear that you’ll receive the settlement. The lender may also not approve your loan if it doesn’t fall within the types of cases they provide funding for.
You should check the lender’s requirements and apply for the loan only if you’re certain you tick all the boxes and meet their requirements.
What should I consider before applying for legal finance?
- Applying for the first loan you see. You won’t know if you’re getting the best deal if you apply for the first loan you find. Compare your options first and make a shortlist based on cost, terms and eligibility.
- High rates and fees. You will be charged interest and you will be charged fees. Look out for both interest rates and comparison rates. The latter will tell you the true cost of the loan and includes both interest and additional fees. Calculate how much the loan will cost you over its lifetime. Make sure you’re aware of all the fees and charges to avoid nasty surprises.
- Unlicensed lenders. Some loans can be too good to be true, while some lenders can be predatory. It’s best to check if the lender is legitimate and what its history is. You should check the lender's website and make sure it’s a reputable company and is registered with ASIC. The lender should also be easy to contact. Going a step further and checking out reviews online will give you an idea of what to expect from the lender.
- Borrowing more than you can afford. Check the cost of the loan and make sure you can afford it. You should be comfortably able to include your repayments in your budget. You should also avoid borrowing more than you need.
- Multiple applications. Every loan application shows up on your credit report. Several applications within a short period can have a negative impact on your credit score. This can make it harder for you to get a loan in the future. Select a single loan and lender that you’re eligible for and that suits your needs. If you’ve already applied for legal finance, give it a few more days or contact the lender before applying elsewhere.
- Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan and all the fees and payments. Keep in mind that for unsecured loans, the lender can initiate legal proceedings against you if you don’t repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector. With secured loans, your loan security can be repossessed by the lender if you fail to make your repayments.
How can I apply for legal finance?
🤔 Work out what type of loan you need, how much you need to borrow and what you can afford. You can use a personal loans calculator to help you.
🔎 Start comparing lenders. You can use the comparison table on this page. Don't forget to compare interest and comparison rates and find a loan you’re eligible for.
✅ Select a lender. If you’re using the comparison table, you can click “Go to site” to be directed to the lender’s page, or “More Info” if you want to read up on the lender.
🖨️ Organise and prepare the required documentation. This can make the application process easier.
📱 Apply. Most lenders have their applications online.
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