Divorce Loans: Everything You Need To Know
A divorce costs money. If you don’t have the funds to pay for a solicitor and aren’t eligible for legal aid, self-representation is often the only option. This reality can make what is an already daunting situation become even worse.
Divorce loans offer a solution.
What are divorce loans?
In short, divorce loans, also known as ‘litigation loans’ or ‘legal financing’, are provided when a third-party finances (in the form of a loan) some or all of an individual’s legal expenses and related disbursements when they are involved in a litigation (a dispute in a court of law).
How do divorce loans work?
Divorce loans allow a party in a divorce to borrow money to cover their legal costs. The litigation loan is then repaid using a portion of the financial settlement they receive once the divorce is concluded.
While this might sound like a straightforward arrangement, the litigation lender will want to be certain that they will get their money back. That’s why any loan they provide will usually be a proportion of the individual’s projected financial settlement.
How much does a divorce loan cost?
With more and more litigation lenders now in the market, it can be tricky to figure out exactly how much a divorce loan is actually going to cost. Anyone considering taking out a litigation divorce loan needs to fully understand how much it is going to cost them and be in a position to make an informed decision.
Fortunately, many litigation lenders are extremely transparent, so figuring out how much a litigation loan will cost is relatively straightforward.
To give you an idea, a divorce loan usually has four associated costs:
Admin fee - Usually either a set amount or a percentage of the total approved loan.
Interest rate - Usually fixed for the duration of the litigation loan agreement, typical interest rates are 1% - 2% per month (12% - 24% per year).
Redemption fee - Not all litigation lenders charge this (we don’t), but there are some that do, charging borrowers a fee if they repay their litigation loan early.
Independent legal advice fee - The client will need to seek independent legal advice and pay for it directly before they enter into a litigation loan agreement. Typical independent legal advice fees range between £275 and £350, plus VAT.
What about divorce loan lending criteria?
As previously mentioned, a litigation lender will want to ensure they get their money back, which is why they assess divorce loans on a case-by-case basis.
First and foremost, any potential financial settlement the client is likely to receive needs to more than adequately cover the cost of the loan.
Secondly, the litigation lender will also usually require there to be sufficient UK-based assets, in the case of secured litigation lending. For unsecured litigation lending, the lender will often require that the individual is a UK resident. However, this requirement may be waived if security can be granted in the form of a charge over property or other assets.
Thirdly, the litigation lender will perform a credit check on the individual applying for a divorce loan. This will not affect their credit rating and will only be done with the client’s permission.
Are divorce loans safe?
In most circumstances, divorce loans are safe. However, it always pays to do your homework and find the right litigation lender for you.
For example, some litigation lenders can take longer to approve applications and make funds available to individuals. Sadly, these delays can impact the strategy of a case, which could compromise the overall outcome.
This is why it’s important to partner with a litigation lender who is established, reputable, transparent and efficient.
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