Legal fees can get expensive. Whether you need to hire an attorney for a divorce case, to represent you against criminal charges, or to guide you through the adoption process, the cost can be prohibitive — but that doesn’t mean you should move forward without legal counsel.
Instead, there are a few different ways to pay for a lawyer, including personal loans. We’ll review how to get a loan for legal fees, as well as other options available to you.
What Are Loans for Legal Fees?
While you cannot find a loan designed specifically for legal fees, you can take out a personal loan to cover your legal costs. If your lawyer mentions taking out a loan for payment, they’re likely referring to a personal loan.
How Do Loans for Legal Fees Work?
Personal loans for legal fees work much like how a personal loan works typically. Personal loan rates and terms vary by financial institution. In general, the longer the loan term, the higher your annual percentage rate (APR) will be, but because the repayment is spread out over more years, the monthly payments will be lower. Generally, personal loan terms range between one and seven years.
When you get a personal loan for legal fees, you’ll get the lump sum from the lending institution to pay your lawyer. Some banks offer same-day funding. Then, rather than owing the lawyer, you’ll owe the lender until the loan is paid off in full.
Keep in mind that, in addition to interest, some personal loans include origination fees and prepayment penalties.
Typical Legal Loan Requirements
When you go to apply, the lender may have a few personal loan requirements that you’ll have to meet. These may vary by financial institution.
Credit Score
A key factor in getting approved for a legal loan is your credit score. In general, the higher your credit score, the better your chances of approval (and at a lower interest rate, which means lower personal loan rates).
The credit score you need for a personal loan will vary by institution. Some lenders may even grant personal loans to borrowers with bad credit. In those cases, fees and APRs are typically very high.
Speaking of your credit score, most lenders offer soft pulls for personal loans to see if you’re qualified. But once you apply, expect a hard inquiry on your credit report, which will temporarily lower your score.
Debt-to-Income Ratio
Lenders also factor in your debt-to-income (DTI) ratio when considering your loan application. Your DTI ratio is the total amount of your monthly debts (think car payment, student loan payments, credit card bills, mortgage, etc.) divided by your monthly income.
The lower your DTI ratio, the better your chances of getting approved for a personal loan for legal fees with favorable rates and terms.
Proof of Income and Employment
To get a legal fee loan, you’ll need to demonstrate your ability to repay it to the lender. That means that lenders often want to see proof of income and employment, such as a signed letter from your employer, pay stubs, and/or W-2 forms.
Self-employed and need a personal loan? You’re not out of luck. Lenders may just want to see your tax returns and/or bank deposit info.
Origination Fees
Some lenders charge a loan origination fee when you take out a personal loan. This is a one-time fee at the start of the loan that covers the administrative costs of processing the loan. (If you’ve ever bought a house, you likely paid a mortgage origination fee as part of your closing costs.)
Personal loan origination fees might be flat fees or a percentage of the loan amount. Not every lender charges these fees.
Collateral
Loans for legal fees are usually unsecured personal loans, meaning they’re not backed by any collateral. Other examples of unsecured loans are traditional credit cards and student loans, where you can borrow money without putting up assets as collateral. Because there’s no collateral, fees and interest rates tend to be higher.
That being said, personal loans can be secured in some instances, meaning you’d have to put up some kind of collateral, like a car or house. Secured personal loans may have lower fees and interest rates, but costs vary by lender.
If you get a secured personal loan for your legal fees, you’ll need to offer some kind of collateral to the lender.
Pros and Cons of Using a Loan to Cover the Cost of Legal Fees
Thinking about using a personal loan to cover legal fees? Here are the pros and cons to consider:
| Pros of Legal Fee Loans | Cons of Legal Fee Loans |
|---|---|
| You get access to the legal help you need, even if you can’t afford it right now. | You’ll pay more over time because of interest and fees. |
| Personal loans for legal fees may be cheaper in the long run than paying with a credit card. | Interest rates are typically high if you have bad credit. |
| You can often get same-day funding. | Your budget will be strained with another monthly payment to manage for several years. |
| Unlike credit card APRs, personal loan interest rates are usually fixed; you can count on the same monthly payment until it’s paid off. | Missing a payment can have financial consequences. |
| Unsecured loans don’t require collateral, so you don’t have to put your house or car at risk. | You may be overlooking cheaper alternatives, like a payment plan through the law office or crowdfunding online. |
How Legal Fees Are Billed
Legal fees can run the gamut. Your attorney may charge you several types of fees during the course of their representation. Here’s a quick look at some of the fees you might incur when hiring a lawyer:
• Hourly fees: A lawyer will likely charge you by the hour for their services — and that’s not just the hours you spend consulting with them. Lawyers do a lot of work on your case behind the scenes, and they’ll bill you for every one. Hourly rates can range from as little as $50 to $100 an hour to as much as several thousand dollars an hour, depending on the lawyer’s experience, the complexity of the case, and geographic location. The average hourly rate for a lawyer in 2022 was $313, according to the Clio 2022 Legal Trends Report.
• Flat rates: Sometimes, a lawyer might charge you a simple fixed fee for a specific service. This is typically for less involved work (i.e., no court representation). For instance, they may charge a set rate to prepare your will or help you with a real estate transaction, bankruptcy filing, or uncontested divorce.
• Contingency fees: As the name implies, these fees are contingent. You’ll only pay them if you win your case and are awarded a monetary sum. Often, a lawyer’s contingency fees are a percentage of that sum.
• Litigation fees: Your lawyer may include this as a line item on your invoice, but really, it’s a catch-all for several fees. These include court filing fees, attorney’s fees, expert witness fees, fees for re-creating an accident or accessing records, copy fees, and others.
Recommended: The Cost of a Divorce
Alternatives to Legal Loans
A legal loan is not your only option for covering legal fees. If you don’t want to take out a personal loan or don’t qualify, consider these other options. Just make sure to steer clear of predatory lending.
Credit Cards
Many lawyers accept credit cards as a payment method for their services. If that’s your preferred payment method, ask a lawyer if they accept credit card payments. If they say no, keep looking for a different option.
Just keep in mind that credit cards may have higher interest rates than a personal loan. Check your credit card’s APR to calculate how much you might owe in interest if you don’t pay off your credit card balance quickly.
Legal Payment Plans
Some law offices may offer payment plans to their clients. In this case, you would pay your lawyer in monthly installments rather than in one lump sum.
While not every lawyer offers this option, it never hurts to ask. This is another question you can ask upfront before hiring a lawyer.
Crowdfunding
Asking friends and family for financial help is never easy, but loved ones may chip in if you’re in a bind.
Alternatively, you can seek a wider net of potential benefactors by crowdfunding on social media or using official crowdfund platforms. Just keep in mind that such platforms often keep a percentage of the funds as payment.
Taking Out a Personal Loan With SoFi
Paying for costly legal fees with a personal loan can ease the process and make legal counsel more accessible, whether you’re adopting a child, getting a divorce, fighting criminal charges, or suing a person or business as a victim. SoFi offers personal loans at competitive rates.
Tackle your legal fees with a personal loan from SoFi.
FAQ
Is it legal to take out a loan for legal fees?
Yes, it is legal to take out a loan for legal fees. Legal funding loans are simply personal loans that you take out with a lender to cover the cost of hiring a lawyer.
Can legal fees be tax deductible?
If you’re a business owner who incurs legal fees for your business, you can deduct the cost on your taxes. This applies to property owners who incur legal fees when renting out their property to tenants. In addition, legal fees related to adopting a child are tax-deductible through the federal adoption tax credit.
Can legal fees be paid in installments?
Many law firms offer payment plans to their clients that allow them to make payments in installments. If your lawyer doesn’t offer this and you can’t pay out of pocket, you can also look for a legal finance loan (a personal loan) to cover the cost. While you’ll pay the lawyer in a lump sum, you’ll pay off the loan in installments.
Photo credit: iStock/Andrii Yalanskyi
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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