Are you facing a divorce? You may have questions about how you’ll manage your expenses. Should you get a loan or apply for a line of credit with a legal funder ? Line of credit vs personal loans offer different advantages: personal loan provides fixed funds with scheduled repayments, while lines of credit allow flexible access to funds up to a limit, paying interest only on what you use. If you aren’t familiar with your funding options, you can’t make an informed choice. This article covers the primary factors to consider. By the end, we hope you’ll have the information to make the right choice.
Key Takeaways
- Most lenders prioritise a borrower’s credit score. JustFund is concerned with the merits of your case.
A personal line of credit releases funds up to a credit limit when the client needs it.
JustFund’s line of credit provides the flexibility to handle unpredictable expenses.
JustFund’s credit line is repaid when you finalise your property settlement.
JustFund’s line of credit doesn’t lead to higher interest payments.
Personal loans vs line of credit
Before considering particular financing options, let’s define what these options are.
Line of credit
A line of credit allows you to draw on a pre-approved amount of funding as you need it up to a credit limit. A credit line provides ongoing access to funds.
Personal loans
Personal loans provide borrowers with a lump sum of money and typically require monthly interest and principal payments. There are aspects which are similar to both a line of credit and a personal loan (e.g. variable interest, secured vs unsecured).
How do these options compare as financing solutions for family law clients?
Flexible access to funds
Personal lines of credit from JustFund provide clients with flexible funding. We release money as needed to cover court fees and legal expenses as they arise, which is key to controlling costs. The expenses incurred by family law issues can be unpredictable; for example, parenting and property negotiations may be delayed or extended. With personal lines of credit, we ensure that the necessary financing is always available without the rigidity of traditional loans, allowing clients to manage unexpected costs effectively.
There’s little flexibility in personal loans. Borrowing money upfront from a lender can be useful for a one-time purchase, like a home equity loan, as it provides predictable repayments. However, it’s not suited for ongoing needs with fluctuating expenses or the need to borrow money as situations evolve. A personal line of credit, by contrast, allows you to access money only when needed, making it a more adaptable solution for ongoing or variable expenses.
Securing the right personal loan often requires understanding your expenses in advance, which can be challenging, especially in family law proceedings where costs may vary. Even with an excellent credit score, personal loans can lack the adaptability needed for financial situations that require ongoing support. In contrast, a personal line of credit offers an extended period during which you can access money as needed, providing flexibility to manage fluctuating expenses over time without committing to a fixed loan amount upfront.
Repayment terms
Personal lines of credit from JustFund are an ideal way to minimise the cost of financing during a separation. Firstly, you don’t pay anything out-of-pocket until your property settlement is finalised. During the term of the line of credit, you can access cash as needed without incurring costs on unused credit. Once your entitlement comes through from your property settlement,you typically make a one-time payment of your interest and fees. This flexibility allows you to manage expenses effectively while keeping financing costs to a minimum.
Secondly, with personal lines of credit, you only pay interest on the amount you actually use. This is one of the major benefits of lines of credit, as cash is released only when needed, unlike a personal loan that provides a single lump sum upfront. This means you only pay interest on the funds you actually use amount you require, making personal lines of credit a more cost-effective and flexible solution for managing expenses as they arise.
Personal Loan
When you take out a personal loan, you receive a fixed amount of money intended to cover large expenses, making it a less flexible financing option. You are required to make fixed repayments periodically over a set term. With each instalment, you’re also paying interest, which can be based on either fixed or variable rates. This structured approach can work well for planned, one-time expenses but may not be ideal for situations requiring ongoing financial flexibility.
The longer your loan term, the higher the total interest costs, as interest accumulates on the outstanding principal or remaining balance. With this financing option, if you borrow more than you ultimately need, you’ll still pay interest on the entire fixed amount—even on unused funds—potentially increasing your overall expense. This can make a personal loan less efficient for those who prefer to borrow only what they need and pay interest solely on that amount.
A personal line of credit offers an alternative to a personal loan by allowing you to draw only the amount you need, up to an approved credit limit, with interest charged solely on the cash you use. This flexible structure can be more cost-effective for ongoing or variable financing needs, such as home renovations, compared to a fixed-rate loan or a loan on home equity , which requires repayments on the full debt amount, regardless of usage. This approach means you only pay for what you need, making it an ideal option for managing debt efficiently without unnecessary interest on unused funds.
Since traditional lenders typically rely on the borrower paying a specific interest rate over a fixed term, they often penalise borrowers with good credit for repaying a loan early.
This fixed-term structure of a personal loan can be a major difference when comparing loan options. If you think it’s unfair to be punished for being financially responsible, we agree. JustFund never charges an early repayment fee on a personal line of credit, giving you greater flexibility without the penalties associated with traditional personal loan.
Eligibility requirements
Eligibility can be a significant sticking point for clients. Going through a divorce can be a financially challenging time, which is why many parties turn to lenders for assistance. Traditional lenders often assess your ability to repay by examining your credit score, the stability of your income, and whether you qualify for products like a personal line of credit or a loan with fixed interest rates. These criteria can limit access to needed funds when clients are already under financial strain.
Assessing your credit score and stability of income can disadvantage family law clients. Many parties, particularly women, sacrifice their work prospects to care for their families.
JustFund innovates the legal financing space. Our team’s depth of knowledge is a core strength. JustFund isn’t just comprised of financial advisers like other institutions. We’re a team of experienced family lawyers and fintech experts. We understand family law costs. JustFund’s experts assess a client’s financial requirements based on the details of their case.
Our business model demonstrates the inherent benefits of a personal line of credit over a personal loan to clients. By offering a flexible personal line of credit with interest calculated only on the amount drawn, we tailor our funding in a way other lenders can’t. This approach minimises interest rate costs, eliminates exposure to unnecessary expenses, and promotes fairer access to legal help.
Debunking drawbacks of personal lines of credit
In a family law matter, we’ve shown the benefits of a line of credit to parties. Let’s examine some criticisms.
Cost
Our clients aren’t locked into an extended personal loan term with fixed monthly payments. Taking out a personal loan binds borrowers to monthly payments and interest charges that could last months or years, often without the benefit of lower interest rates or a variable rate that adjusts to market conditions. Additionally, we only apply interest to the funding that clients use. Our personal lines of credit are designed to minimise costs to the client and maximise their access to justice.
Let’s consider how other lenders, including credit unions, approach borrowers. Some applicants aren’t financially stable, and if their application isn’t rejected, they’ll face higher interest rate rather than the lowest rates.
Unlike secured loans designed for a large purchase, unsecured personal loans and personal lines of credit often come with higher interest and strict limitations on the amount that may be borrowed. This means that the people who need assistance the most receive restrictive terms, limiting their access to fair financing solutions and making it more challenging to repay effectively.
Overspending
Personal lines of credit, will lead to overspending. Some argue that receiving one lump sum through a personal loan could provide a clearer sense of total spending. How does this claim relate to JustFund’s line of credit? At JustFund, our line of credit is structured to give clients control and flexibility, allowing them to draw only what they need.
This personalised approach helps clients manage their finances responsibly, without the pressure of a large, fixed loan amount or rigid repayments typically required by a traditional lender.
Again, we would point out that our expert team evaluates the funding we provide through a line of credit or personal line. This approach allows clients to borrow as needed, with funding made available as expenses are incurred, preventing unnecessary spending.
Other lenders don’t oversee the use of their line of credit or personal line funding. How can they guarantee that money are available for essential legal costs?
Conclusion
You don’t need to add financial stress when finalising a divorce. Legal proceedings can seem expensive, but there is help available. Personal loans and lines of credit are popular options to borrow money, and understanding how credit works is essential.
Credit lets you access funds, but key differences in out-of-pocket expenses, repayment period, and suitability for ongoing legal matters has significant implications for clients. The three considerations outlined here will give you a good sense of how each option will impact you and why a line of credit is often the better choice.
Our two-minute survey will help us understand how we can assist you. Contact us today, and look forward to the next chapter in your life.
