Everything you need to know about litigation loans

What are litigation loans?

Litigation loans from professional, regulated lenders can provide a solution to funding legal costs in circumstances where funds are not readily available to the borrower, but where the debt plus interest will be able to be recovered from the settlement awarded at the conclusion of proceedings.

How do I apply for a litigation loan?

An application will be submitted on your behalf by your solicitor to the litigation loan company. The lender will consider the amount requested, the stage you are at with your proceedings, the value of the assets in your case, your likelihood of success, and your ability to repay the loan. Once the lender has approved the application, you will need to seek independent legal advice on the terms of loan i.e. not from the solicitor representing you in the divorce proceedings, to ensure that you fully understand the documentation and your obligations.

When will the money be provided?

Usually, your solicitor will request a drawdown on the loan when they raise an invoice, and the funds will be made available directly to the firm i.e. they will not be paid to the borrower. Interest is usually only charged on the amounts drawn down rather than on the total loan facility, so for example if the lender agrees to provide funding in the sum of £30,000 but your solicitor has only raised invoices and drawn down the sum of £20,000, you will only pay interest on that amount.

What do I need to be aware of with a litigation loan?

There is usually a small administration fee to pay to set up the loan. You will also need to pay for the independent legal advice received regarding the terms and implications of the loan agreement. Interest on litigation loans can be high, typically around 18 – 20%, so both you and the lender need to be confident that you will be able to repay the loan plus the interest from your settlement as well as being able to suitably re-house yourself etc.

What alternatives are there to litigation loans?

Depending on the amount required, you may be eligible to take out a loan from your bank or a credit card with a more favourable interest rate to a litigation loan. Sometimes, albeit rarely, house insurance policies include cover for legal costs, so it is worth checking your individual policy. You may also have friends or family who are willing to lend you money to pay legal costs, in which case it is advisable to enter into a written agreement with them to ensure they are seen as hard loans that must be repaid as opposed to soft loans or gifts that are unlikely to have to be repaid.

Speak with our Family Law Team today

Our Expert Family Solicitors are here to help with all aspects of Family Law. Visit the family law page here, or contact us on 01273 249200.