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, expect to pay between $525 and $725.
It is always best to get an estimate before any repairs are done, so you don’t overpay. Check your repair estimate against the Consumer Reports Care Repair Estimator. This will help if you suspect the mechanic might be overcharging.
It’s stressful when your car breaks down, and you don’t have the money to get it fixed, but don’t panic. There are a few things you should investigate before looking into financing:
Can you get financial assistance?
If you can get financial help for auto repairs, you should! Before turning to lenders, ask yourself the following questions:
Is your car under warranty?
The best-case scenario is that your car is under warranty. Most new vehicles come with a warranty that is valid for a set number of years and miles. In some cases, it continues to apply if the car changes ownership. If that is indeed the case, you may not need to pay for repairs at all. Warranties can be bumper-to-bumper, powertrain, or both.
If you bought your car new from a dealer, call them. They will need your vehicle identification number (VIN) to assist you. They can tell you if your car is still under the factory warranty.
If you bought an extended warranty, be sure to find out if it covers the current problem you are experiencing. And remember, many extended warranties are transferable. So if you purchased your vehicle from a private party, check your paperwork to see if the car still has one.
Have you repaired this issue before? Did the brakes wear out long before they should have? If so, check with the car repair shop to see if there is a warranty on this. Even discount tire stores offer road hazard warranties on tires. Always be on the lookout for discounts on vehicle repairs.
Do you have insurance that pays for mechanical breakdowns?
Typical collision and comprehensive car insurance won’t cover routine mechanical problems. Certain auto insurance providers offer mechanical breakdown insurance (MBI). Geico and Progressive are two such companies.
MBI functions like an extension of a vehicle’s warranty. You can select coverage for the whole car or only specific auto parts. When a problem occurs, you file a claim. After which you take your vehicle to the approved mechanic, pay the deductible, and the insurer will pay the auto repair shop.
This insurance can reduce your out-of-pocket costs, eliminating the need to finance repairs.
Should you repair it?
When your vehicle breaks down, your first instinct is to fix it. But in some cases, the damage is so widespread that the cost of repairing it exceeds the cost of replacing it. If costs are too high, it may be time to trade your vehicle and invest in a new one.
To determine if your vehicle is worth repairing, you’ll need to consider several factors: How much do you owe on it, and how much is it currently worth? Do you pay a lot in month-to-month maintenance? Is the cost of repairs close to the value of the vehicle? How much would you have to pay for a new car?
If it is cheaper in the long run to get a new vehicle, you may save yourself future troubles. But if your vehicle is worth saving and you don’t have the cash to fix it, it’s time to turn to finance options.
Auto repair financing
Before we dive into auto repair financing, let’s first investigate ways to get auto repairs completed at a discount. Repair costs can be reduced by using other products than those recommended by a repair shop. (Insurance companies use approved alternative parts when approving repair claims.)
Customers may find service shops that offer easy payment terms. Easypay for instance, allows your bill to be broken up over a specific number of months. The amount of the repair bill will determine installments and a small finance fee may also be applied. Check with your vehicle repair shop to help you find less expensive products and services for your repairs.
Credit scores and auto repair loans
If you have an excellent credit history, you can be back on the road in no time. If you need auto repair financing, you can secure loans or credit cards to cover the immediate expenses. With excellent credit, you may be rewarded with an interest rebate, cash-back rewards, or other perks. People with good credit can more easily secure personal loans or competitive credit cards with favorable repayment terms.
Poor credit does not mean you cannot find products to cover your auto repair. There are credit card offers and personal loan options for those with less than perfect credit. Most lenders will pull reports from the credit bureaus, and these reports will impact your credit score.
Use credit cards for car repairs
How it works
Most auto shops accept credit cards. You should use a card that pays you mileage or cash back to reap benefits from the repairs.
If you have a 670 or higher credit score, you can avoid interest by applying for a new card. Many credit card companies offer introductory periods with 0% annual percentage rates (APR). Introductory periods are for applicants with high credit scores.
As long as you pay off the balance before the grace period (usually six to 18 months) ends, you won’t owe any interest. Before you use such a card, make sure that you can afford to pay what you owe before the introductory period ends.
If you have bad credit, it’s still possible to pay for your auto repair with a credit card. The OpenSky Secured Visa Credit Card is for those with poor credit. Are you worried you won’t qualify? Concerned that the credit inquiry will hurt your already low credit score? Good news! You can prequalify for this card without the lender checking your credit report.
Like most credit cards for bad credit, the OpenSky Secured Visa Credit Card has a higher interest rate. The card does have an annual fee of $35.
Pros: Mechanics generally accept credit cards. If you can qualify for a 0% introductory APR, it will give you a chance to make a monthly payment and not strain your budget.
Cons: If you fail to pay off the card before the grace period ends, you’ll pay interest on the balance. And if you don’t have a good credit score, you will pay a higher rate.
Apply for an unsecured personal loan
How it works
Unsecured personal loans are a reliable option for car repair financing. You can apply for a personal loan at a bank or credit union, but online lenders tend to provide funds faster. You’ll often get an answer within minutes or hours from them, which will help if you need your vehicle fixed right away.
Unsecured personal loan interest rates are usually fixed. A fixed rate means your payment won’t fluctuate with the market and will stay consistent throughout.
Loan terms often span two to three years, which makes for lower monthly payments. 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 may carry fewer fees and better rates than a loan from a bank or a credit union. Funding is generally quick, as discussed. Long loan terms can make it easier to afford your monthly payments.
Cons: It’s hard to get a personal loan with bad credit. If you manage to get one despite a low credit score, expect to pay a high interest rate on the money you borrow.
Personal loans come with different rates, fees, and requirements. Check out the best personal loans to ensure that you choose the best option for you.
Try a pawnshop loan or a title loan for car repairs
How it works
If you need cash fast, a pawnshop loan may be a good option. These loans are quick and easy to get. You bring an item(s) into the pawnshop, the pawnshop then appraises your valuables and gives you a loan based on the item(s)’s value.
Pawnshops provide secure loans – you must leave your possessions as collateral. This means that if you’re unable to pay off the loan, you could lose those possessions. Depending on state laws, the pawnshops may allow an extension or renewal of the loan. Suppose you don’t have any assets you would want to hand over to a pawnshop, in which case you can consider using your vehicle as security in an auto title loan.
Pros: You get your money right away. The lender does not check your credit because you secure the loan with collateral. This is a useful benefit if you have bad credit.
Cons: You risk losing your valuable items if you are unable to pay.
Take out a high-interest rate loan for auto repairs
How it works
If you have no other option, you can apply for a payday or a title loan. These loans have extremely high interest rates. Rates this high can trap you in a neverending, expensive cycle of trying to pay off the loan. As such, they should be an absolute last resort.
Payday loans, also called cash advance loans, let you borrow money from your next paycheck. The interest rates on such loans can run from 210% to 782% APR, with an average of 300% to 500% APR. Suppose you fail to repay a payday loan within 14 days. In that case, the lender will roll the loan over, refinance it and add more interest and fees.
Payday loan companies require that you have a check account. To be approved, they will have to verify your bank account. They will request proof of income and references. Terms are not favorable for lenders. If you go the payday loans route, make sure to pay off the account quickly.
Car title loan
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 25% to 50% of the value of your car. Fail to pay this loan off, and the loan rolls over, with more interest and fees. If you don’t keep up with the payments, the lender will sell your car, which would make the repairs a wasted expense.
Pros: High-interest rate loans are an option even if you have bad credit. You get the money instantly once approved.
Cons: Interest rates with these loans are prohibitively high. It’s very easy to get stuck in a payback cycle. With a title loan, you could even lose the car you just paid to repair. Unless you have a collectible vehicle, there’s a chance that you won’t be able to get a car title loan on a malfunctioning car.
The bottom line in car repair refinancing
So which financing option is right for you? If you have good credit, consider signing up for a new credit card with an introductory period. If your credit is good, but you need more time to make your payments, an unsecured personal loan is a great option.
Whenever considering financing options, research is an essential first step. Take a look at SuperMoney’s Best Personal Loans Reviews and Comparison for more information before you make your choice.
Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.