Can I Pay for a Divorce With a Personal Loan?

Is a Personal Loan a Good Option for Your Divorce?

Divorce attorneys can cost hundreds of dollars per hour, so their bills add up fast. In addition to lawyer and court fees, you might also need money to help starting your life over, finding and furnishing a new place. It's typically best to pay for these expenses with savings so you don't accumulate any new debt. But if your savings isn't sufficient, a personal loan could work.

For one, interest rates on personal loans are typically lower than those on credit cards. If you have excellent credit, you can score a very reasonable interest rate on personal loans. You'll still be paying interest every month, which adds to the overall cost of your divorce, but it might be much less than what you'd pay by putting it on plastic.

A personal loan also usually gives you a larger sum than you're able to access via a credit card or savings. If you need a significant sum of money to pay for divorce expenses, it might be easier to do that with a personal loan than a credit card or other form of financing.

Also, unlike a credit card, a personal loan usually has fixed monthly repayments, and this predictability can make it easier to work it into your budget. With a loan, you're given one lump sum upfront that you'll repay in installments over time, usually over a period of several years.

What to Consider Before Getting a Divorce Loan

Before you apply for a personal loan to cover your divorce, it's important to think through the decision carefully.

First, consider whether you can realistically qualify for a personal loan. If you have good to excellent credit, which means a FICO^® Score^☉ of 670 to 850, chances are solid that you can qualify for a personal loan with a low interest rate. If your credit is fair (a score of 580 to 669), you might be able to qualify for a personal loan, but your interest rate might be steep. For credit scores below fair, an unsecured personal loan might not be an option. Keep in mind that lenders also look for a stable income that ensures you'll be able to repay the loan.

On that note, before you take out a loan, look at the estimated monthly repayment and make sure it will fit into your budget. Late or missed payments will negatively affect your credit score, so only take on a divorce loan if you know you can repay it on time every month.

Also, remember that with a loan, you can't increase the amount later. If what you need might change or increase, it could be better to use revolving credit such as a credit card or line of credit, which lets you borrow only what you need.

If you're thinking about getting a personal loan for your divorce, make sure to shop around and compare your options. You'll find that loan amounts, terms, interest rates and fees can vary quite a bit from lender to lender. It's also worth comparing different types of lenders, such as banks, credit unions and online-only lenders. Online lenders usually have a faster approval and funding process than do traditional financial institutions and may be more lenient with credit requirements.

Other Ways to Finance Your Divorce

If you want to avoid taking out a personal loan for your divorce costs, you may have other options. You can:

• Ask for an attorney payment plan. When you hire a divorce lawyer, ask if they offer any sort of payment plan you can use to pay your fee over time to avoid coughing up one lump sum or hefty retainer. Some lawyers may be willing to work with you on this.
• Get a court order. By default, you're obligated to pay your own attorney and court fees. But before you take out a loan, see if your lawyer will petition the court to require your spouse to cover your legal fees instead. This petition is more likely to succeed if your spouse earns much more money than you or financially supported you, and could go through if they unnecessarily drag out litigation. If it doesn't look like a petition will be granted, you could try to obtain a court order that will let you liquidate your share of assets to pay attorney's fees and court costs.
• Borrow from family and friends. If you don't need a substantial amount of money to cover divorce fees, you could consider asking to borrow money from a family member or close friend. If you go this route, draw up a written loan agreement that states the terms of borrowing and repayment. Make sure the person knows when they'll be repaid, and how much interest you'll pay them (if any), and they may feel more comfortable lending you money.
• Opt for an uncontested divorce. A contested divorce, especially one that goes to trial, costs a boatload in legal fees. The uncontested divorce route isn't possible for everyone since it requires agreement between the two parties, but it can make the divorce far less expensive. Uncontested divorces, since they don't require the same amount of legal maneuvering, are generally much cheaper and wrap up much more quickly than contested divorces. You can even do the legal paperwork yourself in an uncontested divorce rather than hiring a lawyer, which could eliminate or severely reduce the need to borrow money to pay for a divorce. Other options include collaborative divorce or mediated divorce, which are less adversarial and could save you on court costs.

Explore Your Options

If a personal loan sounds like the best way to pay for your divorce, be sure to check your FICO^® Score for free before you apply to see where your score currently stands. Knowing your credit score will give you a better sense of your likelihood to qualify.

With an online lender, getting prequalified typically doesn't affect your credit score. This means you can see if you'd qualify and what your interest rate would be without it putting a hard inquiry on your credit report, which is important since hard inquiries temporarily ding your credit scores.