Financing Options for Car Repair

When you use a car to get to work, it needs to be running properly. If it breaks down but you don’t have cash on hand to pay the mechanic, you’re going to need financing for car repairs.

Car repairs can be costly. According to AAA, the annual cost to own and operate a vehicle is $8,698. Maintenance alone costs an average of $766.50 per year. If you need new tires, you can expect to pay $525 to $725.

When you have a trusted mechanic, a second opinion regarding your car repairs usually isn’t necessary. If the auto technician is new to you and the repair estimate seems high, check the required repairs on the Consumer Reports Care Repair Estimator. This will give you a general idea as to how much you should be paying for repairs to your particular vehicle so you don’t overpay and stretch your budget even tighter.

While it’s stressful when your car breaks down and you don’t have the money to pay to get it fixed, avoid panicking. Several options exist for financing car repairs. Read on to discover your choices.

Use plastic

How it works

Most auto shops take credit card payments. Use a card that pays you mileage or cash back to reap some benefit. An even better solution if you have good credit of 670+ is to avoid paying interest by applying for a 0% introductory annual percentage rate (APR) credit card and using it to pay the mechanic.

As long as you pay off the balance before the grace period ends, which is usually between six to 18 months, you won’t owe any interest. Before you use such a card, make certain your budget allows you to pay off the credit card before the introductory period ends. Interest rates on these card offers tend to skyrocket once the grace period ends. These interest rates average 15.49% to 24.24% APR.

If you have bad credit, it’s still possible to get a credit card to pay for your car repair. The Indigo Platinum MasterCard is designed for people with low credit scores. You can even prequalify for this card without the lender checking your credit report. This is good news, because every time your credit report is checked, your score lowers, and that’s something you definitely don’t want when you’re trying to raise your score.

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Like other credit cards for bad credit, the Indigo card features a fairly high interest rate, which is currently at 23.9% APR. The card also has an annual fee of $99.

Pros: Mechanics generally take credit cards. It’s even better if you can qualify for a 0% introductory APR. This will give you a chance to pay off the loan monthly and not strain your budget.

Cons: Fail to pay off the card with the 0% APR before the grace period ends, and you’ll pay high interest rates on the remaining balance. These cards also require that you have good credit. If you don’t have a good credit score, you’ll need to pay a high interest rate, which could make paying for car repairs with a credit card an expensive proposition.

Apply for an unsecured personal loan

How it works

Unsecured personal loans can provide a reliable option for paying for car repair. They are also called signature loans, because by signing, you agree to pay back the loan. You can apply for a personal loan at a bank or credit union, but online lenders tend to pay more quickly. You’ll often get an answer within minutes or hours, rather than days, which is important when your car doesn’t work.

The interest rates are usually fixed with unsecured personal loans. This is a good thing, because that means your payment amount won’t ever change. Such loans are also often for two to three year payoff periods, which makes it easier to fit the payment into your budget. Remember, though, the longer you take to pay off the loan, the more interest you’ll pay on your car repair loan over time.

Pros: Online lenders could offer you fewer fees and more competitive rates than savings and loans and credit unions. Funding is generally quick, which helps when your car doesn’t work. No collateral is required to apply for an unsecured personal loan.

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Cons: It’s hard to get a personal loan with bad credit. If you do manage to get one despite a low credit score, expect to pay a high interest rate on the money you borrow.

Best Personal Loans for Fair Credit

LenderMinimum FICO scoreEstimated APR 
Lending Point60015.49% – 34.99%Apply
LendingClub6605.99% – 35.89%Apply
Upstart6204.93% – 29.99%Apply
Avant Credit5809.95% to 36%Apply
Net CreditNo Minimum35% – 155%Apply

Try a pawn shop loan

How it works

If you need cash fast so you can get your car fixed and get to work, a pawn shop loan may be a good option. Such a loan is quick and easy to get. You bring an item or items of value into a pawn shop and they appraise your valuables and give you a loan immediately based on the value of the items.

It’s important to understand that you’re leaving your possessions with the pawn shop as collateral. This means that if you don’t come back and claim the items and pay for the loan, which includes interest, you could lose your possessions. The pawn shop will eventually sell your items to make up for the money they loaned to you.

Pros: As soon as you agree to the loan amount the pawn shop offers you, they give you the money. These loans don’t require a credit check, or that you have a bank account.

Cons: Since you’re putting your possessions up as collateral, you risk losing valuable items. Depending on state laws, the pawn shops may offer you an extension or renewal, which can give you more time to come up with the money to get your property out of hock before it’s sold.

High-interest rate loans

How it works

If you have no other option and must get your car fixed, you can apply for a high-interest rate loan, such as a payday/cash advance or a title loan. It’s best that you only resort to these loans when you have no other choice. These loan types feature extremely high interest rates that can trap you in an unending, expensive cycle of trying to pay off the loan.

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Payday loans, which are sometimes called cash advance loans, give you the opportunity to borrow on your next paycheck. The interest rates on such loans can run from 210% to 782% APR, with an average of 300% to 500% APR. Fail to repay a payday loan within 14 days, and the lender will roll the loan over, refinance it and add additional interest and fees.

With a car title loan, you use your car as collateral. They are short-term, high interest loans charging an average of 300% APR. You can borrow based on 25% to 50% of the value of your car at the time as determined with Kelley Blue Book by an auto expert who works for the car title loan company. Fail to pay the loan off in time and the lender rolls the loan over, adding more interest and additional fees. If you don’t keep up with the payments, which can become expensive, the lender will sell your car, which would make the repairs a wasted expense.

Pros: High-interest rate loans are possible if you have bad credit. You get the money instantly once approved.

Cons: Interest rates with these loans are extremely high. It’s very easy to get stuck in a payback cycle that results in increasing interest and fees that could add up to enough money for a down payment on a new car. With a title loan, you could even lose the car you just had repaired. Unless you have a collectible or desirable car, there’s a chance that you won’t be able to get a car title loan if your car isn’t working.

Having a car that is running well is important when you rely on it for transportation to and from work. Take a look at SuperMoney’s Best Personal Loans Reviews and Comparison for the ideal financing options for car repair.