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When you have significant legal expenses, 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.
What Is a Personal Loan?
With a personal loan, you borrow a certain amount of money upfront and pay it back in regular installments at an agreed-upon interest rate and terms. You can use the funds borrowed in a variety of ways, including as a loan for legal expenses.Benefits of personal loans include possibly getting a high loan amount with a competitive interest rate, no collateral required, and flexible repayment terms. Personal loans are usually easy to apply for, too, and they can be used for just about anything, including legal fees.
Types of Legal Fees
According to the American Bar Association (ABA), lawyers must charge “reasonable” fees. In other words, ones that are not excessive. When talking to an attorney, make sure to:
Ask for an overall estimate.
Find out how a particular attorney charges.
Confirm how much they’ll charge.
Ask about any fees you don’t understand.
Attorneys may charge hourly or charge a flat rate. They may work on a contingency basis and statutory fees may play a role. Types of fees may include:
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 or workers’ compensation cases. 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 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 or ones involving public or environmental 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 a personal loan, including the following:
Your credit score
Cosigner requirements, if applicable
Payments and your budget
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. Recommended: How to Build Your Credit Score
Using a Cosigner
If an applicant doesn’t qualify for a personal loan, it can be worthwhile to use a cosigner in order to both qualify and get a better interest rate. If a qualified cosigner applies for a personal loan, the personal loan can be approved so you can receive the funds. If you are unable to make the 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 decide to apply for a personal loan for legal expenses, it’s a good idea to shop around and compare lenders. You’ll want to take into consideration the interest rates, fees, repayment terms, and more.
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 personal loans, 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 expense 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. However, you’ll likely pay back more in interest over the loan’s life. A shorter term means a higher payment, but less paid in interest 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 pay for legal fees over a period of time. Usually, with a personal loan, you can get funds fairly quickly. Some lenders deposit the loan into your account within 24 hours of loan approval. If you need funding quickly, this is something you’ll want to compare amongst lenders.
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
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 as a form of payment. 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. Keep in mind that if you don’t pay the credit card balance off in full each month, this will add interest to the legal fee payments you’re making.Recommended: How to Choose the Right Credit Card
Home Equity Loan
If you don’t want to take out a personal loan to pay for attorney fees, you could consider a home equity loan. 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.
Compare Personal Loan Rates With Lantern
It can make sense to explore different types of personal loans to see what might work best for you. Benefits of using a personal loan for attorney fees include fast funding times, flexible qualification requirements, and competitive interest rates.If you do decide a personal loan is right for you, consider Lantern. With just a single application, you can receive personal loan offers from top lenders in our network, all with no obligation to you.
Frequently Asked Questions
Can you take out a loan to pay for a lawyer?
Can you put legal fees on a credit card?
How can I keep a lawyer without money?
Photo credit: iStock/courtneyk
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About the Author
Kelly Boyer Sagert
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.
