According to a study done by AAA, the average auto repair loan falls between $500 and $600. Unfortunately, about one in three drivers are unable to pay their auto repair loans without accumulating debt. So, if you’ve found yourself in a situation where you have no money to pay for car repairs, know that you’re not alone. Fortunately, getting a loan for car repair may be easier than you think.
Here you will learn about the different types of emergency car repair loans and which one may work best for you and your financial situation. Find the money you need for your car repairs so you can get back on the road!
Types of Auto Repair Financing
When it comes to auto repair loans, you have several avenues to consider. Below is more information on some of the most popular loan options people use for auto repair.
The first option to consider for taking care of your vehicle repairs should be a personal loan. Personal loans fall under the category of installment loans, meaning borrowers pay back their balance in consistent monthly payments with a fixed interest rate.
You can find a personal installment loan through a financial institution like a private lender, credit union, or bank. But keep in mind that not all direct lenders are the same. For example, credit unions often have strict qualification requirements, and the bank usually only accepts applicants with ideal credit. This is why it is always best to research different lenders when looking for funding.
Payday loans, also called an online cash advance, are a type of bad credit funding designed for people looking for money when in between paychecks. Payday loans are known for having extremely high-interest rates and exceptionally short payback terms. Most payday lenders expect borrowers to pay back their loans in total within about two weeks or less.
Credit cards are a revolving line of credit that gives people access to renewed funding each month. Furthermore, borrowers only pay interest on the amount of money they spend. But, it’s worth mentioning that credit card debt is one of the most common financial struggles for Americans. So, unless you can pay off your balance at the end of each billing cycle, credit cards may be a risky option to consider.
Title Loans or Pawns
If you own a vehicle you are willing to use for collateral, you may get a car title loan. Similar to a payday loan, car title loans also come with high-interest rates and brief repayment terms. Unless you can pay back your entire balance within a few weeks, you may want to stay away from auto title loans.
Is It Better To Get a Secured or Unsecured Loan for Auto Repair Financing?
You may be wondering if you should go with a secured or unsecured loan for your car repair needs. A secured loan is a type of funding where borrowers are expected to provide collateral. The equity of the collateral helps determine the loan amount, interest rates, and other terms of the loan. Secured loans are a common option for people who don’t have excellent credit because lenders tend to care more about the equity in the collateral over the applicant’s credit history.
However, keep in mind that whatever property a borrower uses as collateral is at risk should they miss a payment or default on the loan. For example, borrowers who default on a car title loan risk having their vehicle repossessed and kept at an impound lot until the borrower can become current on their title loan bill. If not, the vehicle may be auctioned and sold off.
Unsecured loans, on the other hand, do not require collateral of any kind. Instead, lenders consider the borrower’s financial history, income, and other financial factors to determine approval.
How Much Do Auto Repairs Cost?
When everything is running smoothly, owning and maintaining a vehicle can cost up to $8,500 a year when you consider monthly payments, insurance costs, and gas. This expense is quite steep, and things may only get more expensive as you experience additional issues with your car. For example, a new timing belt for your vehicle can cost anywhere from $400-$900, new brakes can cost up to $500 or more, and an alternator or starter replacement can cost anything from $400-$600. No wonder so many people have trouble affording auto repairs!
To avoid unnecessary damage and keep your vehicle in tip-top shape, AAA recommends you do the following:
- Set aside approximately $50 a month for any emergency auto repairs that come up.
- Review the owner’s manual of your vehicle and adhere to the recommended maintenance schedule.
- Research mechanics before you actually need one; then, you won’t be pressured into going with the first option you come across during an emergency.
- Talk to your mechanic about the functionality of your vehicle, which repairs can be put on hold, and which ones cannot.
- Get a quote from multiple mechanics, or try negotiating to make sure you are getting the best deal.
When To Use Insurance Instead of Getting a Loan for Car Repair
Before you apply for an auto repair loan, check with your car insurance provider to see what they can do for you. Some common types of car insurance you may be able to utilize for vehicle repairs are collision or comprehensive insurance.
True to its name, collision insurance helps to financially cover you and your vehicle in the case of a collision or car accident. Collision insurance may be able to help you out if you have been in a car accident with another driver or had an accident with an object, such as a telephone pole.
Comprehensive insurance helps pay for other damage caused to your car by circumstances other than a car accident. Some circumstances that may allow you to use comprehensive insurance are:
- Stolen vehicles.
- Dented bumper.
- Deep scratches in the paint on your car.
- Some rear-end damage.
- Fire damage.
- Damages caused by a natural disaster.
- Other water damage.
- Falling objects like construction debris.
- Damage caused to your car by animal incidents, such as running into a deer.
- Damage caused to your vehicle during a civil disturbance, like a protest turned riot.
To use your car insurance, contact your provider and speak with an insurance agent. Inform them of the situation and why you would like to use your insurance. From there, the agent can review your insurance policy and give you an estimate of how much your provider can cover. If insurance doesn’t cover 100% of the costs, you can either dip into savings or take out a loan to cover the rest.
Benefits of Using a Personal Loan for Auto Repair Financing
When you need to take care of vehicle repairs quickly, and don’t have the extra cash available, a personal loan may be your best option. Check out some of the benefits you can take advantage of below!
Applicants With Any Credit History Considered
A personal installment loan is available to borrowers with good credit, bad credit, or any kind of credit score in between. While rates, terms, and loan amounts may differ depending on your financial situation, there is a personal loan product available for just about anybody.
Potential To Increase Credit Score
Personal loans may also be used for credit repair. Making consistent payments on your loan builds your payment history and also helps you knock down the balance you owe.
After you have paid off your remaining balance and the terms of the loan are satisfied, you may see a boost in your credit next time you pull a credit report!
You can pull an official credit report from one of the three major credit bureaus. The three major credit bureaus are Experian, Equifax, and TransUnion. Remember that hard credit inquiries are kept on record and may cause your score to drop if too many are pulled. To avoid any future damage to your credit, you may want to pull an unofficial soft credit check to get essentially the same data lenders see on official credit reports.
Competitive Interest Rates
Your interest rate plays a huge role in determining the total cost of your loan. Having a convenient interest rate can help you save hundreds or even thousands of dollars over the terms of your loan. Personal installment loans are known for coming with industry-wide competitive rates based on the most current market data.
Flexible Repayment Term
Personal loan terms are designed to fit the budget of each borrower. That means you can space out your installments, so payments stay small and manageable. You can also feel free to pay back your loan before the date designated on your loan term without dealing with prepayment penalties.
How To Qualify for an Auto Repair Loan
When determining approval for a loan, lenders will want to confirm that borrowers have sufficient income to repay their debts. You can prove income for a loan by providing documents like a paystub, bank account statement, or tax return.
After confirming your income, lenders will also ask for other qualifying documents and information such as:
- Government-issued photo ID.
- Checking account information.
- Proof of residency.
- SSN or ITIN.
The Bottom Line: Auto Repair Loans
There are many options to consider when you need to borrow money for auto repair. Factors like your credit score, income and financial history play a role in determining what types of loans you may qualify for. Personal loans may be a great choice for repairing your car because they come with plenty of borrower perks, even for those with poor credit.