It’s no secret that it costs much less to maintain a vehicle than it does to make repairs after a part breaks. The average cost of common repairs are between $500 and $600, but some repairs can cost even more than that. AAA recommends that car owners try to put aside a minimum of $50 a month to cope with routine maintenance costs, unexpected car repairs, and to protect the value of their vehicle. Unfortunately, many drivers are financially unprepared to meet these costs.
When you find yourself in a financial fix and need vehicle repairs that aren’t covered by your vehicle’s warranty or insurance, there are some options for auto repair financing. By comparing each loan’s interest rates, fees, and terms, you can make the best decision for your situation. Here are a few ways to find the best financing for your car repairs.
Financing Auto Repairs With a Personal Loan
The fastest way to get a large sum of money for car repairs would be through a personal loan. You can pay the principal back in monthly installments over a certain period, but you will be charged interest every month until the loan is paid off. There may also be fees. Before issuing you the funds, lenders will look at your credit history, which will determine your reliability as a borrower and will help the lender set the terms and interest rate of your loan. Here are a few different types of personal loans.
The easiest way to get a personal loan is through a bank or credit union. It’s best to research online where you can compare terms on vehicle repair financing. Here are a few key words you need to know when evaluating the terms of your loan:
- Principal: This is the total amount that you want to borrow, excluding interest and fees.
- Fees: These are the extra hidden costs, such as application fees, origination fees, late fees, and any penalties that may apply.
- Interest rate: This is the extra amount you pay each month to borrow money. It’s usually a percentage of your borrowed amount and excludes any fees or charges.
- Annual percentage rate (APR): This is the yearly cost of borrowing or the annual rate charged for a loan.
- Repayment term: This is the time period of your loan. You usually have a specified amount of months in which to pay back your loan.
RISE is an example of an online application that offers adjustable auto repair financing and access to financial wellness and credit monitoring tools. This traditional loan company offers short-term financing for new tires, transmissions, brakes, repairs for emissions tests, and accident damage repairs.
Also known as a cash advance loan or check advance loan, a payday loan requires you to submit post-dated checks or allow automatic transfers from your bank account to the lender. This type of loan can be both limiting and risky. As a result, payday loans are not permitted in all states and are often capped at set amounts. The fees may be steep, so beware if you don’t have sufficient funds in your account when the payment is due.
Like payday loans, title loans are also short-term and very risky. A title loan requires you give your car title to the lender in exchange for your money. The title will be returned 30 days after repayment, but failure to pay may result in repossession of your vehicle. The statistics of title loans are frightening: one in five borrowers loses their vehicle due to repossession as a result of non-payment.
Financing Auto Repairs With a Credit Card
Most people don’t think twice about using a credit card to pay for auto repairs. Here are a few things to think about before reaching for your credit card.
Paying for car repairs with your credit card carries extra costs. For example, a $1,000 vehicle repair paid for on a card with a 15% interest rate could take up to 56 months repay and cost the borrower $395 in interest. If your card has a higher annual percentage rate, say 20%, repayment can last 67 months and $662 in interest would accrue. The only time it’s worth using your existing credit card is when you can pay the amount back within a billing cycle—before you’re charged interest.
New Credit Card With a Low Introductory APR
To avoid the high interest rates of an existing card, shop around for a credit card that offers low introductory APRs. These cards often offer a lower interest rate for the first year of membership. However, APR kicks in after the introductory period, so make sure to pay your balance before then.
Financing Auto Repairs With Car Repair Shops Payment Plans
Car repair shops realize the high costs of many of their services, so they often offer auto repair payment plans for their customers. These often come in the form of their own branded credit cards, which usually have little or no-interest introductory rates on a short-term basis. They also sometimes offer a discount on your auto service. Once again, if you can pay back your loan during that time, it’s a great solution. If it’s going to take you longer, another type of loan with a consistent interest rate may be less pricey.
Synchrony Car Care is a finance company that partners with auto repair shops. Their co-branded credit card gives customers access to funds for repairs, maintenance, and gas.
Financing Auto Repair Loans With Bad Credit
Fortunately, your credit score is only one factor that determines whether you’re a reliable borrower. Lenders are able to serve people with bad credit, but be prepared to pay a high interest rate. The best auto repair loans in this category are those from the following companies:
- HonestLoans for amounts up to $50,000
- CashUSA.com for amounts up to $10,000
- Money Mutual for amounts up to $5,00
Before taking a loan in any form, get quotes for your repairs. Then compare various loan offers to find the most cost-effective solution. Next, start saving for an emergency fund to prevent having to take out any further loans. There are even cases where it may be better to purchase a new car, rather than keep forking out for vehicle repairs. Always do your due diligence.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.