How to finance a divorce
- Personal loans have a repayment schedule: You’ll know in advance when your debt will be paid off, so the uncertainty of debt doesn’t hang over your head indefinitely.
- Personal loans can have refund conditions spanning several years: It is common for personal loans to have repayment terms of around three to five years, although some loans have shorter repayment terms and others longer. This multi-year repayment schedule gives you ample time to pay off what you owe with reasonable monthly payments.
- You control the funds: If you borrow money on your behalf after your separation, your spouse has no control over what you do with those funds – while using the assets in shared marital savings accounts can be difficult at times. With a personal loan, you get the money up front from the lender and can use it to do anything from hiring a private investigator to locate missing marital property to paying legal fees.
Because of these advantages, the use of personal loans may be preferable to many other alternative sources of divorce finance.
Disadvantages of personal loans to finance your divorce
Of course, there are some drawbacks to using a personal loan for a divorce.
- You have to pay interest: Although the interest rate is usually lower than the regular credit card rate, you still have to pay interest on your debt. And, depending on how much you borrow and how long it takes to pay off the loan, interest charges can run into the thousands of dollars. It makes your divorce even more expensive.
- Qualifying for a loan can sometimes be difficult: Depending on your income, credit score, and other debts, it may be difficult for you to get a loan with a reasonable interest rate and good terms. This can be especially true if you were a stay-at-home spouse with no personal income or if you and your spouse have a lot of joint debt.
- You are blocked by borrowing a fixed amount: When you take out a personal loan, you get a fixed amount that you receive all at once. You can’t just ask for a loan increase if your divorce turns out to be more expensive than you expected – you’ll have to apply for an entirely new loan. And, since you get all the money up front but can pay legal fees over time, you could be paying interest on borrowed money that you won’t need for months.
What are your alternatives?
When you consider the pros and cons of using a personal loan to pay for the divorce, you should also consider your alternatives. After all, if a personal loan is the only reasonable source of funds to pay for your divorce, getting one is clearly the right choice. But, if you have other options, you will have to compare these other solutions to get a personal loan.
Some of your other options for financing your divorce may include the following:
- Use of savings: This can be tricky if you and your spouse have joint access to a savings account. But, if you can access reserve funds and pay your lawyer with the available cash, you can avoid having to go through the loan application process or pay interest. The downside, however, is that those savings won’t be available to organize your new life after the divorce.
- Billing Legal Fees to a Credit Card: Not all lawyers allow you to bill your legal fees, but some do. If you charge your legal fees, you may have to pay a higher interest rate than with a personal loan – and your credit limit may not be high enough to fully cover divorce costs. The upside is that you can borrow money as and when you need it, and you don’t have to take a big loan all at once – and you could possibly apply for an increase in your credit line. credit if it turns out you need more money. If you can get a card with a 0% promotional APR, you might also be able to avoid paying interest on the money you borrow for your divorce if you can pay off what you owe during the promotional period.
- Borrow from the family: If you have family members willing to lend you money, you can also avoid applying for a loan and paying interest. Unfortunately, this could make your family relationships uncomfortable, especially if you can’t pay off the loan right away. And family members may feel like they can influence decisions made during your divorce if they lend you money.
As you can see, in many cases a personal loan is a better choice than these other options – but it will depend on your situation.
Be smart when borrowing for divorce
Whichever approach you choose, try to keep borrowing costs as low as possible by looking for ways to keep costs down during divorce – like negotiating certain issues outside of court.
And be sure to shop around for the most affordable financing possible because you don’t want to start your new single life with a pile of expensive debt hanging over your head.
Still have questions?
Here are some other questions we answered: