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When you have significant legal expenses, perhaps unexpected ones, a personal loan for attorney fees may be a good way to pay what you owe. To see why, here’s a quick overview of what a personal loan is and how it can serve as a flexible form of legal fee financing.With a personal loan, you borrow a certain amount of money and then pay it back in regular installments at agreed-upon interest rates until it is paid back in full. You can use the funds borrowed in a variety of ways, including as a loan for legal expenses.Benefits of personal loansinclude the fact you can often get a higher amount than what’s set as your credit card limit, and usually at a lower interest rate. Collateral isn’t typically required and payments are predictable and easy to manage with longer repayment terms than those available on many other kinds of loans. They’re usually easy to apply for, too. Next up are the types of legal expenses you may need to pay; what to consider before taking out loans for legal fees; and alternative forms of legal fee financing.
Types of Legal Fees
According to the American Bar Association (ABA), lawyers must charge “reasonable” fees, ones that are not excessive. They can charge their fees in a variety of ways, so be sure to do these things:
Ask for an overall estimate
Find out how a particular attorney charges
Confirm how much they’ll charge
Once you receive a bill, ask for an explanation about any fees you don’t understand.
On the specifics of the fee, an attorney could charge an hourly fee or a flat rate. They may work on a contingency basis and statutory fees may play a role. Here’s more about each.
Attorney Hourly Fees
According to the ABA, the most common billing arrangement is an hourly one. The rate may be higher for courtroom hours than those spent researching a legal issue or for office consultations, and experienced lawyers will likely have a higher hourly rate than newer ones. That said, an attorney with experience may require less time to handle certain legal issues.
Attorney Flat Fees
In some circumstances, an attorney may charge a flat fee. Typically, they’ll do this in situations where the legal work is predictable. This can include traffic tickets and other driving misdemeanors, simple wills, adoptions, name changes, and uncontested divorces. The benefit of flat fees is you’ll know up front how much you’d need to pay in attorney fees.
Contingency Fees
This arrangement is often used in personal injury cases or workers’ compensation ones. In this situation, the attorney would agree ahead of time to a fixed percentage of the funds recovered (say, one-third), which means the lawyer would only get paid if they’re successful in getting you a settlement. If you lose, you won’t be awarded any money, but you wouldn’t have attorney fees to pay, either. However, there would likely be court costs and other miscellaneous fees.
Retainer Fees
If you’ll need to pay an hourly fee for your legal services, the attorney may well require a retainer, which is a lump sum deposit. The attorney will use these funds first, based on the agreed-upon hourly rate. Then, when this money decreases, you’ll need to deposit more to cover upcoming hours of work.
Statutory Fees
A statutory fee is one that’s created by a statute, such as a state or federal law. This typically applies in civil rights violation cases, ones involving public issues, perhaps environmental, and similar issues. Although the Supreme Court ruled that minimum fees can’t be required, there can be maximums imposed through statutes.
Things to Note Before Opting to Use a Personal Loan
As you explore the idea of personal loans for attorney fees, there are a few issues to consider about qualifying for the loan, including the following:
Your credit score
Cosigner requirements, if applicable
Payments and your budget
Here’s more about each.
Credit Score
Credit scores give lenders a quick snapshot of your credit history, which gives them a sense of how well you will handle debt if awarded a personal loan for legal expenses or other purposes. Higher scores indicate that you’re less of a risk and the lender may therefore offer a lower interest rate. If scores are lower, the rates may be higher or the loan may be declined.
Might Need a Cosigner
If an applicant doesn’t qualify for a personal loan or would need to pay a higher interest rate, a financial institution will typically consider the creditworthiness of a cosigner, as well, when making a lending decision. If a qualified cosigner applies for a personal loan with you and signs the paperwork, the personal loan can be approved so you can receive the funds. In this case, if you don’t make payments, the cosigner would be legally responsible for the debt.
Affording the Payments
A financial institution will likely have an income requirement to ensure that you’re able to make payments. A commonly used metric is the debt-to-income ratio (DTI). The DTI is a percentage that divides your total monthly debt payments by your gross (pre-tax) monthly income. A lender will often have a maximum allowable DTI percentage with a low DTI indicating that the borrower can manage their debt payments and aren’t overextended.
How to Find the Right Personal Loan
If you’ve decided to apply for a personal loan for legal expenses, compare:
Interest rates
Fees
Repayment fees
Other benefits
Here’s more about each.
Interest Rates
As you compare personal loans, look at the annual percentage rates along with interest rates. An APR is the percentage that will indicate the actual cost of borrowing the funds on a yearly basis, including fees and other costs. This is a bottom-line number that makes it easier to compare personal loans among lenders.
Fees
Besides interest, lenders may charge fees on their personal loan products, such as origination fees, late fees, and prepayment penalties. Different lenders have different requirements, so look for what’s best. An origination fee is a one-time charge to cover processing and administrative fees, while late fees can be charged if payments aren’t made by the due date. Plus, some lenders charge a prepayment fee if the loan is paid off ahead of time because this means they’ll get less interest, overall.
Repayment Terms
If you take out personal installment loans with a longer term, the payments will be lower, which can help with cash flow, but you’ll likely pay back more in interest over the loan’s life. A shorter term means a higher payment but less paid back, overall. A lender may be willing to offer a lower interest rate for a loan with a shorter term.
Other Benefits
Personal loans are often unsecured and don’t require collateral. They can help borrowers to build their credit scores and to pay for legal fees over a period of time. Usually, with a personal loan, you can get funds fairly quickly.
Alternatives to Using a Personal Loan for Legal Fees
Although personal loans come with advantages, there are other options to consider, including:
Pro bono lawyers
Raising funds online
Setting up payment plans
Paying with a credit card
Using a home equity loan
Paying on contingency
Here’s more about each.
Pro Bono Lawyers
Pro bono is a fancy term that means “for the public good,” referring to free legal help in this context. The ABA recommends that each practicing attorney provide at least 50 hours of pro bono help each year, typically for people with limited funds or for nonprofit organizations that help the economically challenged. If you believe you qualify, this can be worth exploring.
Raise Funds Online
You can explore platforms such as GoFundMe and Kickstarter for debt crowdfunding. If a site allows it, you can share the story behind why you need funds for legal expenses and, instead of getting a loan from a financial institution, people can donate money to you or loan it to you for repayment.
Set Up a Payment Plan to Pay Your Legal Fees
Some lawyers will set up a payment plan, which would allow you to pay for legal services in installments. This is, not surprisingly, an in-demand benefit when people seek an attorney. If this appeals to you, talk to the attorney you’re planning to use and ask about whether they offer repayment plans and, if so, how they work.
Pay With Credit Card
Check to see if your attorney will accept credit cards. Over the decades, there have been debates within the legal industry about whether attorneys should accept them as a form of payment. Since they typically can, it can’t hurt to ask yours if they accept credit card payments. (If you don’t pay the credit card balance off in full each month, this will, in effect, add interest to the legal fee payments you’re making.)
Home Equity Loan
If you don’t want to take out personal loans to pay for attorney fees and you either have or would qualify for a home equity loan, you could use available funds on your credit line for your legal expenses. Interest rates are usually lower than a personal loan or credit card. Plus, if you’ve already got the line of credit established, you’ll quickly be able to access funds without going through an application process.
On Contingency
As mentioned above, under some circumstances, an attorney may work on a contingency basis. If this is the case, they would only get paid if they secure a settlement for you. Otherwise, you would only be responsible for any court filing fees, expenses incurred as your attorney gathered evidence, and other non-attorney fees.
Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
