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Divorce Loans: What Are They & How Do They Work?

Divorce Loans: What Are They & How Do They Work?
Nancy Bilyeau
Nancy BilyeauUpdated March 7, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
When you’re in the middle of a divorce, stress could be coming at you from every direction. One source of major anxiety is money. That’s why some people turn to a loan to pay for their divorce.Learn what the term “divorce loans” really means, whether a divorce loan will hurt you or help you, and how to make sure it helps your finances.

What Is a Divorce Loan?

Here’s what you need to know. There are no loans carrying this official name. If you walk into a bank and say, “I’m here for a divorce loan,” you might get a blank stare. Put simply, a divorce loan is this: a personal loan used to pay for the expenses connected to a divorce. You don’t have to explain to the lender you end up choosing what you need the money for. A personal loan is exactly that: personal. In this case, you are interested in borrowing money to pay for your divorce.As for the definition of a personal loan, it’s a loan taken out from a bank or other lender that is deposited into your account. It is an unsecured personal loan, which means it doesn’t require any type of collateral. The lender makes the decision based on how good a risk you appear to be. You must pay back a personal loan with interest. The interest rate depends on your credit score, the loan amount, and the length of time set for repayment. Personal loans generally have lower interest than most credit cards. 

When Might You Need a Divorce Loan?

If you decide that it makes sense for you to take out a loan for divorce settlement, you may feel that the money is coming to the rescue at an opportune time. Uncontested divorces do not cost a lot, generally speaking. But if the divorce is contested, you will need to come up with some money fairly quickly. People generally spend around $11,000 on lawyer fees. There are other fees to factor in as well.Also, a personal loan can help you consolidate and pay off some of your debts. This might improve your credit rating at a time when your name may be coming off of various joint accounts. Making timely payments will advance your cause too. With a stronger credit rating, you’ll be in a better position to buy a car or house post-divorce.

Reasons to Get a Loan for Divorce Settlement 

When you’re facing a divorce, a lump sum of money may hold a special appeal. You might find it of the utmost importance to protect yourself and get a good attorney and hire the best experts.Some people may even think of a divorce loan as an advance against the expected divorce settlement. There are many unknowns and financial risks to taking that approach, though.

What Fees Do Divorce Loans Cover? 

Because a “divorce loan” is a personal loan, you can use it to pay for whatever expenses are connected to your divorce. No banker will be standing by with a checklist to make sure the expenses are appropriate.  There are all sorts of reasons to apply for a personal loanWhen we’re talking divorce settlement loans, those fees might include:
  • Court fees
  • Lawyer
  • Tax adviser
  • Forensic accountant
  • Real estate appraiser
  • Living expenses during length of divorce
  • Mental health counseling

Considerations Before Getting a Divorce Loan

Going through a divorce is tough – it’s a volatile time emotionally and, for many, financially. Some experts caution that while you might feel you need to secure that money right now, it’s tricky to seek out a loan for divorce. Consider it carefully.

Your Future Is Uncertain

When you’re trying to get a personal loan, lenders are evaluating your ability to repay. But until the divorce goes through, you may not be able to present a clear picture of your assets and income. So it might be hard to get favorable terms from a lender for a divorce loan before everything is finalized.

The Downside of Debt

You’re setting off to build a new life. That might mean moving or pursuing a new job – this is a period of fluctuation. You need to ask yourself if tying yourself down in making monthly loan payments fits well into this scenario.

If Payments Run Late

Should the divorce put you through the ringer and you have a hard time making on-time payments on your personal loan, it will damage your credit rating. There’s a definite personal loan impact on credit. You really don’t want to look like a poor risk while you’re starting over. 

Divorce Settlement Funding Options

Bottom line: You will most likely need an infusion of money to pay for divorce expenses, particularly if it’s a contested divorce. Some people tap their home equity or borrow from a 401-K to fund their marital split. There are certainly less drastic paths to explore to get that financial help. 

Personal Loans

If you present yourself as a solid candidate with a strong credit rating and receive good terms, a divorce settlement loan could be a smart way to get cash when you really need it. In this case, the personal loan rewards might outweigh the risks. Warning: Be careful when evaluating lenders of personal loans, because some of them are predatory.

Credit Cards

While credit cards often carry higher interest than personal loans for divorce, they serve as a source of quick funding without having to go to the bank to borrow. And you wouldn’t see the change to your credit rating caused by a hard check, which lenders usually do when they’re considering someone for a loan.

Payment Plan

Some attorneys are open to payment plans over months and even years. Others will make an arrangement that will allow their fees to be paid from assets after the settlement.

Borrow From Loved Ones

It’s hard to ask others for help in getting a divorce. But your extended family and close friends might be more than willing to help you. Just be sure to pay the money back on time to avoid resentments.

Can You Get a Divorce Loan with Bad Credit?

If you have a bad credit score, it’s sometimes possible to get a personal loan. However, you are likely to be stuck with a high interest rate. Consider carefully if you can make the large loan payments, especially since you will be slammed with even lower credit scores if you fall behind.

Compare Personal Loans With Lantern 

With the spike in financial costs connected to a divorce, especially a contested divorce, people ending their marriages may look to a personal loan to cover the unavoidable fees and expenses. Being approved for a loan and repaying it on time will improve your credit rating, which is helpful when you’re starting a new life. Because this is a volatile time, however, be careful to consider whether this is the best time to take on monthly low payments when the time comes to repay your divorce settlement loan.Lantern by SoFi can help you explore personal loan rates. After you provide basic information about yourself and the loan you need, Lantern can guide you in the process to apply for a personal loan with the lender of your choice.

Frequently Asked Questions

What is a divorce loan?
Can I pay for a divorce with a personal loan?
How much does a divorce typically cost?
Photo credit: iStock/Hispanolistic

About the Author

Nancy Bilyeau

Nancy Bilyeau

Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.
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