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A Guide to Types of Auto Repair Loans

Young happy cheerful professional car mechanic man in blue overalls gloves hold payment terminal fow paying with credit card by female owner driver woman work in vehicle repair shop workshop indoors.

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We can’t always predict when we will run into car problems, but they seem to come at the worst times. Even if you take excellent care of your vehicle, things can go wrong. Whether it’s fixing a small part or replacing something bigger like the engine or transmission, car repairs can get expensive. If your car is in the shop and you don’t have the cash to pay for the repairs to get it back on the road, you might have to borrow money. Fortunately, a variety of auto repair loans can help you pay for car repairs.

What Is an Auto Repair Loan?

An auto repair loan is a personal loan used to cover the cost of car repairs. These loans are meant to cover sudden, unexpected expenses. The benefit of taking out an auto repair loan is you can quickly get the money to pay for the repairs and then pay the loan back over time. Some lenders offer loans with a fixed interest rate, so you have predictable monthly payments.

We depend on auto insurance to cover repairs resulting from a collision, but insurance does not cover regular wear and tear on a vehicle or other repairs. Auto repair loans can help cover these costs that insurance policies don’t. The loans can be secured or unsecured, and every lender has different loan terms, interest rates, and fees.

What’s the Difference Between a Secured and Unsecured Loan?

Learning the difference between a secured and unsecured loan can help you decide which type you should get. A secured loan is backed by collateral, such as your car. Some secured loan contracts state that missing a payment allows the lender to take possession of the collateral, while most allow borrowers to miss a few payments before declaring the loan to be in default.

Unsecured loans have no collateral, and they are also referred to as personal loans. Because the lender has nothing to collect if you default on the loan, the rates are generally higher for unsecured loans.

going into default with an unsecured loan affects your credit score. The lender could also send the debt to a collection agency if you don’t pay. Unsecured loans tend to have higher interest rates than secured loans because of the lack of collateral.

Most auto repair loans are secured loans with the car as collateral. If you don’t want to risk losing your vehicle if you can’t make payments, you’ll most likely have to apply for a personal loan.

Can I Get an Auto Repair Loan if I Have Bad Credit?

You can get an auto repair loan even if you have bad credit. Just be prepared to pay a higher interest rate.

Depending on your credit history, you might also be able to get a traditional loan from a bank or credit union; it will just come at a higher rate. If you have severe issues with your credit history, you might have to turn to alternative lenders to get a loan.

What Are the Different Types of Auto Repair Loans?

Auto repair loans can vary, and certain types might be more appropriate for your situation than others:

Traditional Loans

Banks, credit unions, and online lenders offer traditional loans you can use to pay for car repairs. In most cases, these lenders will run a credit check and base approval on your credit history. Choosing a secured loan will lower the interest rates, but an unsecured signature loan could also be helpful.

Title Loans

A title loan is an option for someone with bad credit. The approval process is quick, and you can sometimes get the money on the same day. The lender might use the value of your vehicle and your income to determine the amount of money to lend you. It’s important to note that title loans are not available in every state. If you don’t make payments and the loan goes into default, the lender might take possession of your car.

Payday Loan

A payday loan is a short-term loan that will get you the funds needed to pay for repairs without a credit check. A payday loan is sometimes referred to as a cash advance loan because it only lasts until your next payday. The loan balance plus additional fees might be due when you get your next paycheck. These loans often come with extra fees and high interest rates.

Payday Alternative Loan

A payday alternative loan is a short-term loan from a federal credit union. It’s an alternative to a payday loan for credit union members who need money quickly. These alternative loans usually charge lower fees, and the National Credit Union Administration sets guidelines for the fees and also caps the interest rates. Payday alternative loans offer a longer repayment term, which helps make repayment more manageable.

What Can I Use An Auto Repair Loan For?

Auto repair loans help cover any kind of unforeseen car repair expenses. These can range from minor fixes to extensive repairs. Common repairs car owners might borrow money to cover include:

  • Tires. Tires can cost $200 or more each. The price can get high quickly if you need to replace all four.
  • Transmission. A new transmission can range from a few hundred dollars to several thousand.
  • Brakes. New brakes can cost several hundred dollars or more depending on your car.
  • Damage after an accident not covered by insurance. Liability insurance covers damage you might have caused others in an accident, but if you don’t have comprehensive or collision coverage for your own car, repairs after an accident will come out of your own pocket.
  • Repairs for emissions testing. Emissions testing only costs about $100 depending on the state, but if you need to have repairs to pass, it can get expensive.

Borrowing money to cover auto repairs is not ideal, but sometimes it’s necessary. An auto repair loan can help you get your car back on the road and allow you to pay for repairs over time instead of in one lump sum. It’s important to research loan types and compare rates and terms before deciding which one is right for your financial situation. Get a few quotes from different lenders and compare rates before making a decision.

FIXD Research Team

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.

We’re here to help you simplify car care and save, so this post may contain affiliate links to help you do just that. If you click on a link and take action, we may earn a commission. However, the analysis and opinions expressed are our own.


About the Author

FIXD Research Team

FIXD Research Team

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.

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