Paying for car repairs with an auto repair loan: What you need to know


Everyone knows that car repairs are a part of car ownership. That doesn’t make paying for them any easier, especially when they’re unexpected. Whether you need $400 for a new alternator or $4,000 to replace your entire transmission, you need a way to get back on the road quickly and safely.

Being without your car to go to work, take your kids to school or run your one-man business isn’t an option. But did you know that a car repair loan might be? And a financially savvy one at that. Learn what car repair loans are and how to find out if there’s one that’s right for you.

What is the main landing page for users to apply for their loan? Is there an apply page or would they click somewhere from the home page? This should link to the home page, or an Apply page, if one exists.

The trouble with car repairs

Three (questionable) ways to pay for unexpected car repairs

Yes, you really can finance car repairs with an auto repair loan

What can a car repair loan cover?

What to look for in a car repair loan

What to look for in an auto lender

Applying for a car repair loan

The trouble with car repairs

An estimated 63% of Americans don’t have enough savings to pay for a $500 emergency, according to a recent survey. The average car repair bill falls between $500 to $600 and, depending on the issue, can go much higher. As a result, 1 in 3 U.S. drivers can’t pay for an unexpected repair without going into debt, says the American Automobile Association.

In addition, costs for repairs were more than 61% higher in 2017 than they were in 2000, according to Forbes, and they’re likely to keep rising. Part of the increase is due to the fact that cars today have more sophisticated, computer-driven systems, requiring more expensive parts and increased labor. These systems also make it harder for the average do-it-yourselfer to fix their car at home. If you own an older car, the number of miles on it and whether or not you properly maintain it can also greatly affect your repair costs.

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In addition, costs for repairs were more than 61% higher in 2017 than they were in 2000, according to Forbes, and they’re likely to keep rising.

Three (questionable) ways to pay
for unexpected car repairs

So, what are your options for getting repairs done? There are several, but not all are going to be right for you or your financial future. It’s important to know what they are and exactly how they work. Many have significant downsides you need to carefully weigh.   

Options you may see in a lot of advertising on include:

1. Payday loans

“Get cash now!” That’s the siren song of a payday loan, also called payday lending, cash advance loans, check advance loans, post-dated check loans or deferred deposit loans. They’re small, short-term loans with extraordinarily high interest that are usually due after your next payday. Whether you walk into a lender’s storefront or borrow online, they come with an annual percentage rate, or APR, of 390% or more, according to the Federal Trade Commission.

Most customers have to renew these loans when they’re due. As a result, they turn into what the Consumer Financial Protection Bureau (CFPB) describes as a “debt trap” that’s hard to escape. A loan for just a few hundred dollars can end up costing a borrower hundreds of dollars more with every loan renewal.

2. Vehicle title loans

These high-cost loans, also called auto title loans, require borrowers to use their vehicle title for collateral. In other words, if you can’t pay back your loan in the agreed upon terms, they can take your car. There are single-payment versions of these loans as well as installment loans. A study by the CFPB found that 1 in 5 single-payment vehicle title loan borrowers ends up having their car or truck seized by the lender for failing to repay their loan.

Like payday loans, vehicle title loans have an extraordinarily high APR rate and severe fees. The CFPB has found that these products “often prove unaffordable to consumers, leading to significant consumer harm.”

3. Credit cards and credit card cash advances

Credit cards themselves aren’t always a bad option. But for many people, the cost of car repairs can max out a card that they need for other just-as-important things, like groceries or utility bills. Having to choose between necessities is a lose-lose situation. Whether adding to your existing balance is a smart choice also depends on how high your card’s interest rate is and how fast you’re able to pay off your charges. In addition, credit cards have compound interest, which means you’re paying interest on your interest.

While credit card cash advances can also be tempting, interest rates are usually very high and typically kick in immediately at the time of purchase with no grace period.

Clearly, you need to be cautious about committing to any of these options. Instead, consider looking for a fair, transparent car repair loan with flexible and affordable terms.

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Yes, you really can finance car repairs with an auto repair loan

Many people are surprised to hear that, yes, you can finance car repairs just like you finance a new mattress or a new dishwasher. However, auto repairs can be a big expense, and paying for them like you do other big expenses can make good financial sense.

Simply put, a car repair loan lets you make monthly payments over time that are digestible. $1,500 may sound like a daunting amount until you realize that you only have to pay, for example, $62 a month.

The advent of online car repair loans also means you no longer have to walk into a bank and fill out tons of time-consuming paperwork while your car sits unfixed. In addition, many auto repair shops and/or dealerships partner with reputable online lenders to offer their customers a way to apply for car repair loans in minutes, right on the spot.

In some cases, the lender may send the amount you agree to finance directly to the shop and/or dealership after they repair your car, making for a hassle-free transaction. In other cases, the lender may deposit the money directly in your bank account or provide you with a virtual credit card you can use to pay for your repairs.

What’s important to remember is that not all lenders and loans are alike. Just like some of the more questionable payment options, whether a car repair loan is in your best interest depends on the terms, fees and rates. Different lenders also have a wide range of eligibility requirements, application processes, loan amount ranges and levels of customer service. In addition, some have higher loan approval rates than others.

What can a car repair loan cover?

Typically, a car repair loan covers work fundamental to your vehicle functioning properly. That includes:

  • Repairs and service work

  • Preventative maintenance

  • Tires

  • Insurance deductibles

Some auto lenders will also offer certain applicants special roadside assistance programs, vehicle protection plans or personal cash that doesn’t have to be used on repairs.

Car repair loans often don’t cover:

  • Extended warranties

  • Prepaid maintenance packages

  • Non-essentials, like new stereo systems

In addition, lenders offer different loan ranges, and how much you qualify for depends on their credit criteria and your credit history. Your state’s laws can also have an impact on what a loan can and cannot cover.

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What to look for in a car repair loan?

A fair car repair loan from a reputable lender should offer as many benefits as possible at a time when you need that extra support. It should ease your anxiety — not increase it — and put you back in control.

Look for a loan with:

Affordable monthly payments.

Auto repair shops and/or dealerships can’t wait for your paycheck to arrive. You want to work with a lender that will. The idea of a car repair loan is to get your car serviced today and to pay for it over time. You want one that offers competitive rates and low payments. In addition, look for offerings like 0% interest when you pay off your loan within 60 days. If you put the cost of repairs on a high-interest credit card with a revolving balance, you’ll begin paying interest immediately. Not having to pay interest for a period of time can actually save you money.

Flexible payment options.

A good car repair loan will let you pay on a schedule that works for you. They should match the loan to your income and provide different payment timelines to choose from after you’re approved. You can improve your credit if you make your payments on time and your lender reports those payments to the credit bureaus. Also, make sure there’s no penalty for paying off your loan early.

A fast, easy, online application with an instant decision.

Look for an online, paperless loan that you can apply for directly from your smartphone, tablet or computer. The application process should take just minutes to fill out and require only a few pieces of basic personal information, such as your name, phone number, the last four digits of your social and your monthly income. The approval decision should be made in seconds.

Three things to do before you look for a car repair loan

If you have any type of warranty from your car’s manufacturer or a repair shop and/or dealership that fixed your car previously, check to see if the work you need done is covered in any way.

Ask whom they recommend for car repair loans. Reputable repair centers generally partner with reputable lenders that they trust and have worked with frequently.

If the repairs are more than the value of your car, they may not be worth doing. Websites like Kelley Blue Book can help you figure out if you should move forward or not.

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What to look for in an auto lender

Any time you borrow money, you want to borrow it from a lender that is honest, transparent and fair. They should understand not just the lending industry, but the auto industry. They should be focused on people and not just business. How to tell? Look for the following:

1.  Top Better Business Bureau (BBB) ratings

The BBB is a nonprofit organization that impartially evaluates a company’s track record and shows customer reviews and complaints. When you’re considering a lender for a car repair loan, you can search for them on the BBB website. You want them to have a five-star customer review average and an A+ BBB rating.

2.  Exceptional customer reviews

In addition to customer reviews on the BBB, visit the lender’s website to see what testimonials they’ve posted and where they come from. You should also take a look at their digital footprint; search Facebook, Google, Yelp, Twitter and other social media sites to see what people are saying about their experience. Pay attention to how the lender is described and what benefits customers talk about. If a lender has few or no reviews, be cautious.

3.  Superior customer service

Does the lender provide different ways for you to communicate with them? Do they provide answers to frequently asked questions? What do the reviews say about the customer service team? Having access to a friendly and supportive customer support team when you have questions about your car repair loan is critical.

4.  Accreditation

Make sure that the loans are issued by an FDIC-insured bank. You can usually find this information in the disclosure section of a lender’s website. That means rigorous compliance regulations are being followed. Also, find out if the company plans on selling your loan. It’s better to work with a lender that handles every aspect of your loan in-house, from origination to payoff.

5.  Attention to privacy & security

The lender should be doing everything they can to prevent misuse of your personal data and prevent fraud. When you apply for a car repair loan, they should have a verification system in place to ensure someone else isn’t applying with your information. For example, they may send a code to your cell phone that you need to enter into your application. Also, read their privacy policy and look for digital certificates that indicate they’re continuously working to protect your information online.

6.  A significant lending history

Working with a new lender that’s just popped up can be risky. Find out how many people have borrowed through the lender and the amount of loans funded. Some have very low approval rates, which can be frustrating. Other lenders are willing to match your income to your payment timelines and look beyond the big three credit agencies when making an approval decision.

In addition to knowing what you should look for in a lender, you should also know what to watch out for. Some car repair loans can be “predatory,” which means they take advantage of customers in a tough situation. A company may not be on the up-and-up if they:

  • Want an advanced loan fee at the time of approval

  • Ask you to wire money to an individual

  • Pressure you to act ASAP

  • Have a low BBB rating

  • Have consistently negative customer reviews or no reviews at all

  • Request collateral, like your car, in exchange for the loan

  • Don’t provide clear information on how to contact them

  • Are not transparent about how their loan process works on their website

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Some car loans can be "predatory," which means they take advantage of customers in a tough situation.

Applying for a car repair loan

Many people worry about having their credit “dinged” if they apply for a car repair loan. However, some lenders provide a “soft pull” or “soft inquiry” application . It’s a cursory review of your credit that allows a lender to pre-qualify you for a car repair loan without affecting your credit score.

You’ll find out if you’re approved or not, for how much and at what APR. The terms aren’t set in stone at this point, but you’ll have the general information you need. When you’re on a lender’s site, look for a statement under their application button that says, “This will not affect your credit score,” or similar language that indicates it’s a soft pull.

Learn more about the ins and outs of applying for a car repair loan.

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