When to pay for auto repairs with a personal loan (and when not to)

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If you’re facing car repair costs that you can’t pay out of pocket, a car repair loan can help. Learn how they work and where to find one. (Shutterstock)

Repairing your car can be expensive, especially with today’s rising inflation.

If you are unable to pay an expensive bill, a car repair loan — which is a type of personal loan — may be an option. Here’s how auto repair loans work and how to determine if it’s right for your particular situation.

If you’re looking for a loan to cover repairs to your vehicle, Credible lets you view your prequalified personal loan rates from various lenders, all in one place.

What is a car repair loan?

An auto repair loan is a type of unsecured personal loan that you can use to cover vehicle repair costs. This can include labor costs, parts, or even the rental car you need while your car is at the store.

Auto repair loans have a few key advantages, especially over other financing options. On the one hand, they allow you to spread the cost of repairs to your car over several months or years. Since they are generally not secure, they do not require collateral — and your car, house or other assets cannot be seized if you do not make the payments. Finally, these loans tend to have lower annual percentage rates than credit cards, which often have APRs well into the double digits.

By contrast, taking out a car repair loan will essentially mean having two car loans — and two monthly payments. They’re also not very helpful if you have a low credit score, as that could mean paying a higher interest rate (or not qualifying at all).

Car repair loans are available at many banks, credit unions, and online lenders. You’ll want to shop around if you’re considering one of these loans, as rates, fees, and terms can vary from lender to lender.

How much does a car repair loan cost?

The cost of an auto repair loan – or any personal loan, for that matter – can vary widely. Your credit score, loan amount, and repayment terms will all play a role in your long-term costs. Your lender and the one-time fees they charge will also influence your borrowing costs.

Generally speaking, the higher your rate and your balance and the longer your term, the more interest you will pay. Lower rates, lower balances and shorter terms will lower your long-term interest costs.

To get an idea of ​​what an auto repair loan could cost you, use the personal loan calculator.

3 Times It Might Make Sense to Get a Car Repair Loan

A car repair loan isn’t for everyone, but here are some scenarios where it might be a good idea to get one:

  • Your repair costs are more than you can afford out of pocket, but less than the cost of a replacement vehicle. If fixing your car is clearly more affordable than replacing it – and you don’t have the money to do it – then an auto repair loan may be an option worth exploring.
  • Without the loan, you would need to put the repair costs on a high interest credit card. If you would otherwise need to cover vehicle repairs using credit cards, payday loans, or another high-APR product, an auto repair loan or personal loan might be a more affordable option.
  • You have a good credit rating. If your credit score is high, you could probably benefit from a low interest rate, making an auto repair loan an affordable way to finance your repairs.

Keep in mind that not all financial institutions offer the same rates and terms, so it’s important to shop around for your auto repair financing. Compare at least a few options before deciding which company to go with.

Visit Credible for compare personal loan rates from various lenders, without affecting your credit score.

3 Times It Might Make More Sense to Skip the Loan or Buy a New Car

There may be times when it is wiser to explore other options instead of taking out an auto repair loan:

  • Your credit rating is low. If you have bad credit and don’t have a co-signer, it might be more difficult to qualify for an auto repair loan.
  • Your car is still under warranty. In this case, your warranty provider may cover part of the repair costs.
  • The repair cost is almost as high as a newer vehicle. If the repair costs are significant, you can skip the repairs altogether and replace your vehicle with a comparable used car instead.

Can you get a car repair loan with bad credit?

Most auto repair loans are unsecured, so their terms are based on your financial profile and credit history. Although it is possible to qualify for one with bad credit, this usually means paying higher interest rates. This equates to a higher monthly payment and longer term interest charges.

Sometimes, if your credit rating is low, the lender may also ask you to offer collateral or add a co-signer to your loan application. A co-signer is someone with good credit who agrees to share responsibility for the loan with you (they will only make payments if you don’t).

How to get an auto repair loan

Getting an auto repair loan is quite simple and, with many financial institutions, can be done entirely online.

To get yours, you can:

  • Determine how much you need. Get an estimate from your auto shop that details your expected repair costs. You may want to request a slightly larger loan than this in case labor or parts are higher than expected.
  • Shortlist a few lenders. Mix up the types of institutions you’re considering, including your main bank, a credit union, and an online lender.
  • Request a loan quote with each. To prequalify with a lender, you’ll need to fill out a short form and provide some basic personal and financial information.
  • Compare your options and apply with the lender of your choice. Review the fees, rates, terms, and other details of each loan quote and choose the lender you want to work with. You will need to submit a formal application and may need to provide additional required documents, such as bank statements, payslips or tax returns.
  • Finalize your loan documents. If you are approved for the loan, you will sign a loan agreement. You should get your funds within days, although some lenders can fund loans on the same day or the next business day after your approval.

Once you have the funds for your loan, you can use the money as needed. Rent a temporary vehicle, pay your mechanic, or save some for the paint job you’ll need in the end.

Remember: you’ll need to start repaying your loan immediately, so budget accordingly. Make sure you have the funds to cover that first payment and consider setting up automatic payments to ensure your payments are never late.

If you’re ready to apply for an auto repair loan, Credible makes it quick and easy compare personal loan rates to find the one that meets your unique needs.