Divorce is expensive. In fact, many people have to get creative with their options because they can’t afford a divorce. This could mean having to stay in a miserable marriage, staying separated for years or even moving to a different state where divorce is cheaper. Because of the high costs associated with it, divorce hopefuls may choose a different option— divorce loans.
What is a Divorce Loan?
It will be hard to find a “true” loan that is targeted specifically for a divorce. This is not a common loan type and may be something most lenders have never even heard of. Most people who take out a loan to finance their divorce do so using a personal loan. This loan can be placed in either spouse’s name or, in some instances, both names. The loan should be enough to cover the costs of the actual divorce in addition to costs that might be associated with it. If you have cash set aside for your divorce, you may not need to finance as much.
Either party can get a loan and both parties don’t have to finance the divorce if they are able to afford it using cash or other means. Your loan can help pay for things like your court filing fees, attorney fees, any assessments that are ordered by the court and even expenses associated with the divorce like moving costs.
Since paying for a divorce can be very expensive, it’s important to consider this. While you may have saved money up for it, that amount might not cover all the costs. Another factor to consider is your life after divorce. Do you want to start out with diminished savings or increased debt from the loan? Either option has drawbacks and it’s important to consider your own situation before choosing.
Considerations for a Loan
If you’re considering taking out a personal loan for your divorce, there are some things that you’ll need to look out for. You’ll first want to try to find a loan that has the best interest rate. Since you will likely be using a lot of money, your interest rate matters. A higher interest rate could translate to paying hundreds (sometimes thousands) more over the time that you pay the loan back. It’s also a good idea to learn how your payments will apply. Ask questions like how much of each payment goes toward the interest rate of the loan. Also find out if there are penalties for early payoff.
Another aspect you’ll need to consider is the length of the loan. You could end up with a loan that has you still paying on your divorce 10 years later. It may not seem bad right now, but that is a long time and you likely won’t want to still be tied to that debt. To get shorter loan terms, look at making higher monthly payments.
Lowering Costs Before Using a Loan
If you’ve determined that you will definitely need a loan for your divorce, you will want to take some steps to lower the total amount you’ll have to use. Always put any cash you plan to spend before you use the loan amount. It’s a good idea to use as much cash as you can to avoid paying more interest.
You can also lower the total costs for your divorce to help you save money with your loan. Try to work things out using mediation techniques, consider the cost of your legal team and do your best to avoid a trial. All of these things can help you save money by allowing you to use less of the loan.
Getting a loan—especially one that’s big enough to cover divorce costs—is a risky financial decision. You may not have a clear picture of your finances after divorce and that could hamper your ability to pay for the loan. There are alternative options. You can do things like work out a way to make your divorce cheaper with your spouse if you are in a place to do that. Other options may include asking family for help and trying to source the money on your own. Consider picking up extra work, getting a second job or even spending some time in a side hustle to help finance your divorce. Always consult with a divorce financial professional before choosing to get a divorce loan.