Your options for auto repair financing

Middle-aged mechanic holding clipboard and discussing auto repair financing with young manImage: Middle-aged mechanic holding clipboard and discussing auto repair financing with young man

In a Nutshell

If you’re stuck with an auto repair that you need but can’t afford, auto repair financing with a personal loan may be a good option for you. By taking the time to compare interest rates and fees from different lenders, you may be able to determine if you should go this route or maybe consider another option, like a credit card, to finance the car repairs you need.
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If you’re struggling to come up with cash for an emergency auto repair, you’re not alone.

According to a AAA survey, a new car costs an average of almost $1,200 per year to maintain and repair — and only one-third of U.S. drivers are financially prepared to cover unexpected repair costs.

If you need an auto repair that’s not covered by your warranty or your insurance, and you don’t have the cash on hand, there are a few ways to help you get the financing you need. Let’s review some options and compare pros and cons of each.

Financing auto repairs with a personal loan

A personal loan is one option that could help you get the money you need for your car repair. And depending on the lender and whether you’re approved, funds may be deposited into your checking account as soon as the next business day. These types of loans are installment loans, meaning lenders will allow you to pay back the money you borrow over time through regular monthly payments. In addition to the amount you borrow, you may be required to pay interest and fees, which can vary from one lender to the next.

Your credit history is one factor that may affect your ability to qualify for a personal loan — and if you’re approved, your credit will likely affect the terms and interest rate you’re offered. If you want to take out a personal loan for auto repairs, but can’t qualify for the loan or the rates you want, you may want to consider applying for a personal loan with a co-signer, who can help give the lender confidence that the debt will be repaid.

Here are some places you can go for a personal loan, and how those loan options compare.

Traditional loans

Banks and credit unions can be a good starting point for a personal loan when you’re ready to shop for competitive rates. Online lenders are another option to consider — you can compare terms on auto repair financing between all the personal loan lenders you’re considering to look for the best loan terms for your situation.

But before you borrow money from any financial institution, you should review the terms of your personal loan.

  • Principal: The principal is the amount of money you’re borrowing, excluding interest and fees.
  • Fees: Fees are extra costs that may include application fees, origination fees, late fees and prepayment penalties.
  • Interest rate: Interest rate is what you’re paying to borrow an amount of money, usually expressed as a percentage of the amount you’re borrowing. This does not reflect fees or any other charges associated with taking out a loan.
  • Annual percentage rate: APR is the annual cost of borrowing. It includes certain borrowing fees, so it’s typically higher than your interest rate.
  • Repayment term: The repayment term is the length of time you have to repay your loan. It’s usually expressed in months.

Tip: Thinking about getting your auto repair financing from a payday lender? Consider reaching out to your credit union to learn more about a payday alternative loan, which can be an affordable loan option for some. These loans range from $200 to $1,000 and are paid back over a one- to six-month period, with a 28% APR cap.

Payday loans

Payday loans, sometimes referred to as cash advance loans or check advance loans, typically require that you provide a post-dated check or give the lender permission to make an automatic withdrawal from your bank account. Payment for the full loan balance, plus fees, may be due by your next payday.

Borrowing against your future paycheck has limitations — as well as risks. In states where payday loans are allowed, the maximum loan amount may be capped at a set amount. Even with such a small loan, the fees can be astronomical — equal to APRs as high as 400% or more. And additional fees may be charged if you don’t have the funds available in your account when the payment is set to go through, or if you roll over the loan for another reason, if allowed.

Title loans

Like payday loans, car title loans are risky short-term financing options. If you’re approved for a car title loan, the lender provides a loan in exchange for your car title. When you repay the loan and fees, which are usually due 30 days after the loan is issued, you can get your title back.

But if you fail to pay, you either face a vehicle repossession or have to cover “rollover fees,” on top of other fees, so that you can delay your loan repayment date.

This can be a very expensive and risky way to borrow money. The typical APR for a car title loan is 300%. According to the Consumer Financial Protection Bureau, more than two-thirds of auto title loan borrowers roll their payment over at least six consecutive times due to the difficulty of repaying the high costs. The CFPB also found that one in five borrowers ends up having their vehicle repossessed because they can’t repay their debt.

Financing auto repairs with a credit card

Using a credit card could be a quick and convenient option for covering an emergency auto repair — for some. But weigh these options before you reach for plastic.

Existing cards in your wallet

If you’re considering turning to a credit card you already have, know that paying for your auto repair with a credit card may not be cheap. For example, at an APR of 15% with a $25 per month payment, a $1,000 repair could take you 56 months to repay and cost you almost $395 in interest. At 20% APR, it would take 67 months to pay for the repair and cost you almost $662 in interest.

For that reason, we recommend using an existing credit card only for purchases you can comfortably afford to pay on time and in full within one billing cycle.

New card with a low introductory APR

While using an existing credit card may hit you with high-APR costs, there are other ways to pay for an auto repair with a credit card. If you want to avoid getting hit with high interest charges, check out credit cards that offer introductory 0% purchase APRs. With these credit cards, you can avoid interest charges on your purchases during an introductory period after your account opens — typically, this time lasts for about 12 months to 21 months. But be aware: After the intro period ends, your card will have an APR. If you don’t pay your balance off before the intro period is up, the remaining balance will get hit with the APR.

If you qualify for a card that offers an intro 0% purchase APR, and know you can repay the full balance of your auto repair charges before the intro period ends, using a credit card could be the most affordable way to finance your auto repairs.

Branded cards from your mechanic or auto supply store

Some mechanics or auto parts stores offer financing options for car repairs through branded credit cards.

Synchrony offers a Synchrony Car Care™ credit card in partnership with a number of major auto repair chains — including Midas, NAPA Auto Parts and Discount Tire — that allows customers to apply for a co-branded credit card that can be used to pay for repairs, maintenance, gas and more.

And Napa AutoCare, for example, offers customers a NAPA EasyPay credit card through Synchrony that includes some perks and no annual fee for new cardholders.

Bottom line

Comparison shopping isn’t just useful for getting the best deal on jeans or a new kitchen appliance. It can help make your auto repair financing more affordable, too.

Before you take out a loan or apply for a new credit card to finance your car repair, compare quotes for the repair work you need. Ask mechanics about pricing before you take your car to the shop and consider asking for a written estimate.

Once you decide where to have your repairs done, you can compare loan offers to make sure you’re getting the most cost-effective deal available for you.

And before you get stuck in the same boat again, start building up an emergency fund for future financial needs.

About the author: Sarah C. Brady is a San Francisco–based financial consultant, workshop facilitator and writer. In addition to writing for Credit Karma, Sarah writes for Experian, LendingTree, Magnify Money, MSN News and more. In her … Read more.