High cost of legal fees doesn’t help when you are facing the prospect of a lawsuit.
Things can quickly go out of hand at the legal front, especially when emotions are running high, like in a divorce, personal injury, or workmen’s compensation claim, among others.
Legal representation is not cheap and can potentially run your finances into the ground if you are required to pay out of pocket.
While there are some lawyers who will represent clients on a contingency basis, there are not many types of cases where you can expect this benefit (particularly when you are the defendant). Costs of legal services can easily rack up into the tens of thousands of dollars.
Luckily, you do not have to pay from your checking account or use your emergency funds. Here are some of the best ways you can obtain a loan to pay for your legal fees.
- Home Equity Loan
You can pay your lawyer by borrowing against the equity in your home. This can be in the form of a home equity loan (HEL) or line of credit (HELOC). The equity in your home serves as collateral in both these loans, though there are subtle differences between the two.
HEL was earlier referred to as a second mortgage and can be best described as the second loan you take up in addition to your original home mortgage. If you are wondering whether you can have two mortgages at once or not, you can find the answer by click here.
These loans are for a lesser amount as compared to your first mortgage and generally at a higher interest rate because it is repaid only after your first mortgage (should you default).
On the other hand, HELOC is a revolving line of credit with a set limit similar to a credit card with variable interest rate. You can use as much or as little of the money as needed, up to your assigned limit which makes it a better option for paying legal fees.
When embroiled in a legal battle, you may have to pay retainer fees as well as cover other legal expenses during the entire duration of the lawsuit.
HELOC gives you the benefit of borrowing money as and when it becomes due. You don’t have to pay interest on the loan amount that is not used by you.
However, HEL comes with its own set of advantages in the form of a single fixed monthly payment with an interest rate that is lower than a credit card rate and tax benefits at the same time.
However, one major disadvantage of using both these loans to pay for legal fees is the added financial risk you incur against your home.
For instance, with outstanding unsecured debt or a car title loan you usually only run the risk of things such as impacting your credit score, wage garnishments (which can happen even in a 3% GDP economy), collection calls, and car repossession.
But, if you take up a HELOC or a HEL to pay for legal fees and fail to repay the installments, you may end up losing your home.
- Car Title Loan
Car title loans are among the easiest loans you can get to cover your legal expenses. These are quick loans that are secured against the value of your vehicle.
Being secured loans, these are much cheaper than other loans in the same category as payday loans or cash advances.
One of the major benefits of using car title loans to pay for legal expenses is that these are short term loans and come up for repayment quickly.
If you believe your lawsuit will not go into trial and be settled fairly quickly, then car title loans can be a great option to cover the intermittent lawyer fees and legal expenses.
Another benefit of taking up these loans is that you do not lose driving privileges. No reputed or licensed lender will impound the vehicle or ask you to keep it in a garage for the duration of the loan. You can drive your car as normal.
To obtain a car title loan, you will need to provide a clear and lien-free car title in original. However, there are some lenders who are known to accept car titles with a few standard loan installments remaining on them.
Like with every other loan, you must shop around for the best loan terms and request for multiple quotations. Look beyond interest rates when seeking a car title loan to pay for legal expenses.
For instance, when does the loan come up for repayment, is the repayment plan comfortable, are you getting a good value (loan amount) for your car, and whether the lender has good customer testimonials or not.
Car title loans are available to people with poor and bad credit scores. This makes it one of the few available options for people to obtain a loan for legal fees.
These loans are no-questions asked loans, which means you can use it to pay for your legal expenses, and even use any remaining amount towards paying for other bills.
- Unsecured Personal Loans
Unsecured personal loans are not secured by collateral, such as a car, a home, or savings in a bank account. Consumer loans, installment loans or signature loans can be taken up to pay for legal fees.
Unsecured loans don’t require you to provide a valuable asset as security and may be a good option if you are not comfortable using your assets as collateral.
The downside – they are very expensive and require an almost pristine credit score to get an affordable interest rate. You may end up paying double or triple the interest rate as compared to home equity loans by taking out unsecured personal loans.
These loans are even more expensive in terms of processing fees, administration charges, and interest rates, as compared to some cheap car title loans.
These loans work by getting a lump sum amount of money and repaying it over time in pre-fixed installments. There is usually no room for negotiation or flexibility. Unsecured personal loans can be funded in 48 hours or less and you can use them for almost anything you want, including legal expenses.
Make sure you look at the APR, the origination fee, and the length of the loan’s term while shopping for an unsecured loan.
Alleviating Your Credit Score Blues
Getting into debt is never a sagacious option. However, applying for a loan can be the only way you can prevent losing money over a lawsuit or avoid facing severe consequences.
Car title loans are among the best loan alternatives since they are instantaneous, for short-terms and can be used towards repairing your credit score.