To work out the overall cost of your legal finance, you need to factor in:
1. Loan Interest Rates: The biggest factor in how much a legal fee loan will cost you is the rate of interest you’ll pay on the amount borrowed. Legal fee loans can come with variable or fixed interest rates. If you are opting for a variable-rate loan, it is best to also calculate a worst-case scenario, one where a loan’s interest rates rise significantly in the future to be sure you have a comfortable buffer in the event things change. At Plenti, our legal fee loan interest rates are always variable. Interest is only paid on the amount outstanding, once a settlement is reached.
2. Upfront Fees: ‘Establishment’ or application fees for all loans can vary greatly, so it’s an area where shopping around can make a difference.
At Plenti, we have one upfront fee on our family law loans. The credit assistance fee is 4% on the amount of credit sought. This is a one-off fee capitalised to the loan at the time of the initial drawdown. This means you won’t actually pay the fee upfront, rather, it will be added to your repayments at the time of settlement.
3. Ongoing Fees: These fees are charged throughout the life of the loan. Common ongoing fees include:
- Monthly or annual fees (also called account keeping fees)
- Default, dishonour or missed payment fees
- Hidden fees in the terms and conditions of a loan
At Plenti we never add hidden fees. We charge two types of ongoing fees for legal fee loans:
- An $80 monthly fee
- A risk assurance charge, which is 5% on every dollar drawn down on the loan
- Some loans also require a security fee, if caveats are required for the security of the loan, these fees are $980 for caveats and $1300 for mortgages
Each of these fees is capitalised to the loan, so you only pay them once you begin making repayments.
To find the true cost of a loan, you can combine the costs of these fees with the interest rate of the loan. As long as you are comparing the same loan terms and amount, a comparison rate helps you to compare the cost of different loans.
At Plenti, typical borrowers incur effective costs of about 11% p.a.
Now that you understand the building blocks of a legal fee loan, you’ll be better able to decide which loan suits you. Planning and considering your situation upfront will help when comparing what green loan products are available that might really fit your needs, and offer the best value.