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What’s a “Divorce Loan” and Should I Get One?

Hands exchanging money

Divorce can be as draining financially as emotionally. Your divorce lawyer may have tips on keeping costs in check, but borrowing money might still be necessary. Luckily, our law firm provides loan and financing options that could help you.

Here, our East Brunswick divorce lawyers shed light on the option of divorce loans, and whether it might be a prudent consideration for you.

What an Average New Jersey Divorce Costs

Divorces are as unique as the couples involved, so there is no surefire answer for how much your divorce is going to cost. There are retainers for attorney’s fees, Court costs, possibly financial advisers and more. That said, the average cost of a divorce is about $13,000. There’s lots of room for variation on that, though.

If the divorce is uncontested and the two of you have no major issues to resolve, you’re looking at about $4,100 on average. But if your case goes to trial on two or more major issues (child support, child custody, asset division, alimony, etc.), you could be looking at $24,000 or more. Divorce lawyers charge by the hour, but failure to involve any lawyers can lead to errors that could have serious implications down the road.

Perhaps it’s no surprise that recent data from financial platform Loanry reported last year a 62 percent increase in the number of people searching for loans to fund their divorce.

Personal Loans Used to Fund Divorce

Many folks pay divorce expenses from a savings account or out it on a credit card. Discuss with your attorney ahead of time whether those payments are being made from accounts considered marital property, a fact that could subject those charges to scrutiny when it comes time for equitable distribution. You just want to be sure you’re aware of the potential implications of your payment method.

For those who don’t have enough cash socked away in savings, an option worth considering is a personal loan - what some are increasingly calling a “divorce loan.”

As explained by Experian, a personal loan is when a person asks to borrow a specific amount of money from a lending institution, such as a bank or credit union. Whereas mortgage loans are used to pay for a house and auto loans are used to pay for cars, a personal loan can be used for numerous purposes. You can apply for a personal loan to help with college tuition, medical bills, major household purchases or renovations, to help consolidate your debt - or for divorce.

One advantage of a personal loan is that unlike repaying credit card debt, personal loans are repaid in fixed-amount installments over a period of time until the debt is paid off. The interest you’ll be charged is clearly stated at the outset, and you’ll have a set monthly amount you repay each month.

Personal loans are sometimes referred to as unsecured loans. That’s because you don’t have any collateral to put up for them. Basically, you need to have somewhat decent credit or someone with good credit who is willing to cosign for you. (Excellent credit would be a FICO score somewhere north of 670; a fair score would be something between 589 and 669.)

Someone with a lower credit score *might* still be able to obtain a personal loan for divorce, but they will pay a much higher interest rate for it. In general, personal loan interest rates are lower than those on credit cards.

If you’re considering a personal loan for divorce, it’s a smart idea to shop around and compare rates. Interest rates, terms, and loan amounts can swing significantly from lender to lender. Online lenders such as Prosper, Lending Club, and SoFi are worth looking into as well. These lenders may be more lenient with their lending requirements.

If Possible, Plan Ahead

Loans are something of a last resort, if only because they are going to cost you. Financially preparing prior to divorce is preferable. If you have an inkling it’s something you’re more seriously considering, try to set aside a little here and there in your own name. Cut back on extras. Even if you never need it ultimately, having a little nest egg is a good idea for anyone.

We understand this isn’t possible in every situation. If you can, try to have all important documents and financial records available. If it’s your spouse who handles all the bills, start taking the time to understand how much is being spent on what and where that money comes from. Having copies of all relevant records (or at least knowing where to find them) can save you a lot on initial attorney’s fees.

If you’re contemplating divorce in East Brunswick, our dedicated divorce lawyers can help formulate strategies to set you up for success in the next chapter.

Call Rozin|Golinder Law, LLC today at (732) 810-0034 for a free and confidential consultation.