Personal loans for legal costs

What are personal loans for legal costs?

Legal proceedings can be expensive, so it’s not surprising that some Australians may consider taking out a personal loan to cover the cost of their legal fees.

When it comes to taking out personal loans for legal costs, some lenders will authorise the loan and leave the rest to you - much as they would if you were taking out a personal loan to, say, pay for a holiday or school fees.

However, there are other personal loan lenders in Australia that offer specialist legal finance products. They’ll work with you to create a personal loan that suits your specific legal matter and transfer the funds directly to your lawyer.

If your case goes on longer than expected, you may be able to apply to extend your loan term.

In some circumstances, if your legal case is successful and you are awarded funds that exceed your legal costs, your lawyer might transfer some or all of this surplus to your lender. That way, just as the lender would be making it easier for you to pay your lawyer, your lawyer would be making it easier for you to repay your lender. Discussing repayment options with your lender before taking out a personal loan can help determine the best course of action.

What cases might you need a personal loan to cover legal fees?  

Conditions vary lender to lender, but the sort of cases for which you may be allowed to take out legal loans include:

• Class actions: A class action is a claim by seven or more people impacted by the same issue.
• Contested probate: The primary purpose of contesting a grant of probate is to prevent the validation of a will.
• Family law: These are civil cases generally involving domestic issues between spouses, parents, and children.
• Personal injury: A personal injury claim is a claim for compensation, usually from an insurer, to cover any financial losses you suffer as a result of a personal injury.

It’s important to note that you might be required to disclose your financial arrangements to the other party involved as part of the legal proceedings.

What are the types of costs involved in legal proceedings?

Why do legal costs add up so quickly? One of the primary reasons is because lawyers often charge high rates, sometimes charging by the hour. Additionally, you may incur legal fees for a wide range of ancillary services.

The Federal Court of Australia outlines that lawyers may charge legal fees for:

• Appearing in court
• Travelling to court
• Research
• Reading documents
• Preparing documents
• Copying documents
• Correspondence
• Administration
• Witness expenses

As a result, you may deem it necessary to take out a personal loan to cover your legal fees and costs. Before doing so, it may be sensible to ask your intended lawyer or solicitor to estimate how much your legal fees are likely to cost.

How to take out personal loans for legal costs

It’s helpful to compare a list of personal loan providers and potentially contact lenders to ask if they offer any specialised legal finance products that match your circumstances.

It’s important to understand the features of a personal loan so you’re aware of the potential costs you may incur. Loan features differ between lenders but some of the key components are:

• Interest rate: e.g. 7.95% per annum
• Interest type: variable or fixed
• Loan term: e.g. three years
• Loan type: secured or unsecured
• Fees: upfront, ongoing, early exit and others

Once you’re ready to borrow, complete an application with your lender by sharing your legal situation, personal details, employment record and financial position.

What are the pros and cons of personal loans for legal costs?

Taking out a personal loan to pay legal fees can be beneficial, although you’re required to borrow money, this could prove to be a value-for-money decision if:

• A personal loan is the best solution to the problem you’re trying to solve
• You shop around to find the most suitable personal loan
• You’re able to repay the personal loan as per schedule
• You are successful in your legal proceedings and win back your costs

However, taking out a personal loan could backfire if:

• Your problem could be solved without having to borrow money
• The personal loan you choose has an excessively high interest rate or detrimental conditions
• You struggle to meet repayments

Ensure you conduct extensive research before taking out any personal loan. It can also be a good idea to seek advice from a finance professional before committing to any legal costs or loans to cover them.