man underneath car repairing

Auto Repair Financing: How To Pay For Expensive Car Repairs

6-Minute ReadAugust 23, 2021


There are a lot of costs to owning a car, and one of the most dreaded is having to pay for an expensive emergency repair job. What’s worse is when the maintenance or damage isn’t covered by your warranty or insurance. Unless you have a second vehicle at home that you can use in the meantime, you may need the cash for the repair on hand immediately.

Fortunately, you have options. Auto repair loans exist to lend you the cash you need to get your car back on the road pronto. The article below will review your auto repair financing options and how they work, as well as any risks involved.

Types Of Auto Repair Loans

Before you go shopping for auto repair loans, be sure that you’ve contacted your auto insurance company to see if they will or won’t cover the repairs. You may also want to get a second opinion from another mechanic or negotiate a lower price. Once you’re sure the repairs aren’t insured and you’ve reached a final cost estimate, it’s time to review your loan options.

Here are some common ways to pay for expensive car repairs.

Personal Loans

A personal loan can be used for a lot of different things, including auto repair jobs. Personal loans are a type of installment loan, meaning you can repay the borrowed loan amount over a period of time in predetermined monthly payments. If you need cash fast, a personal loan can be the way to go.

The terms of your personal loan will depend on your credit score and debt-to-income ratio (DTI). In general, the higher your score, the better your loan terms will be.

Pay attention to the terms of your personal loan, which can include the following information:

  • Your type of loan. There are two types of personal loans: secured and unsecured. If your loan is secured, that means you’ve put something up as collateral to “secure” the loan. Typically for this scenario, you might put the car itself up as collateral, but it can be anything of similar or equal value.
  • Principal loan amount. Your principal details the amount of money being borrowed, and the amount owed before fees and interest.
  • Additional fees. You may owe processing and origination fees for the loan. Late payments can also mean late fees, and depending on your lender, there may be prepayment penalties for paying your loan back early.
  • Interest rate and APR. Your interest rate will depend largely upon your credit score and is the percentage charged for borrowing the loan. The annual percentage rate (APR) will usually be higher than your interest and includes additional fees, like the ones mentioned above.
  • Repayment period. This is the period of time in which you can pay back the loan, based on the amount of your monthly payments. Personal loan terms are typically 36 – 60 months.

Personal loans can get you your cash fast – within a week or even days – and offer fixed rates so that you’ll be paying the same amount every month. Because of their shorter terms and the fact they are unsecured, the interest and monthly payments may be higher than with secured long-term loans. On the brighter side, this just means you can pay your loan back more quickly.

Payday Loans

You may have heard of payday loans as cash or check advance loans. They’re short-term loans available through private lenders that can get you your cash fast, but with a number of risks. Repayment for the full loan could be due by your next paycheck, plus fees and interest. The interest rates and APR for payday loans are known to be around 400%, meaning you’ll owe a lot more than you borrowed in a short amount of time. If you roll over your loan to a future due date, that’s even more interest you’ll pile on.

Unless there’s no other way you can get yourself the money you need, we recommend avoiding payday loans and saving yourself a future headache.

Title Loans

Like payday loans, car title loans are short-term financing options, only in exchange for the loan you hand over the title to your vehicle. Repayment, plus fees, is usually due 30 days after the loan is issued. Failure to make that due date can lead to your car being repossessed. You can roll over your payment, but the typical APR for a car title loan is 300%.

Like with payday loans, you may be risking more than you can afford by using a title loan.

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Alternatives To Car Repair Loans

If for whatever reason you’re unable to qualify for a personal loan, and you’re wary of the dangers of payday and title loans, there are a number of alternative options for financing your car repairs.

Let’s look at some of those.

Home Equity Loans And HELOCS

A home equity loan allows you to convert your home’s equity into cash for your needs. Utilizing this method of financing requires that you have enough equity built up, and meet the credit and DTI criteria for the loan. You will also have to put your house up as collateral. If something goes wrong when paying back the loan, you could risk losing your house through foreclosure. The other drawback is that it may take weeks for you to receive your money, making this an inconvenient option if time is of the essence.

Slightly different from a home equity loan is a home equity line of credit (HELOC), where you turn your home’s equity into revolving credit that you can draw from and pay back, like a credit card. Because your home’s equity is involved, you also risk losing your home with this method.

Mechanic Payment Plan

Some mechanics and auto repair shops work with lenders to offer financing options to their customers. This can come in the form of a payment plan or a branded credit card. The card can offer little or no interest for a specified introductory period, as well as promotions and discounts. After the introductory period, however, you’ll be charged potentially high interest rates, so it’s best to try and pay back the loan before that period ends.

Credit Card

If you get a new credit card to cover the repairs, you can enjoy a 0% interest APR introductory period for up to 18 months. Like with a mechanic payment plan, you can save yourself some cash by paying off the amount within that period. Otherwise, those high interest rates will kick in and possibly bury you in more debt than you bargained for.

Dip Into Your Savings

It may be painful to do so, but if you’re left with no other options, your auto repair financing may have to come out of your own emergency fund. Car repairs may not be what you had in mind when you started saving that money, but if you have no other way to pay, dipping into those funds may be your best option. If your total savings still don’t cover the entire repair bill, paying what you can in cash could lower the amount you may need to borrow.

FAQs About Auto Repair Financing

We’ve covered a lot of loan options above, but you may still have some questions regarding auto repair financing, procedural or otherwise. In an effort to assist you in your financing search, we’ve answered the following frequently asked questions below:

What Can Auto Repair Loans Cover?

Auto repair loans can cover almost any maintenance or repairs related to a car or other motor vehicle. New tires, broken windows and even transmission replacements can be paid for by auto repair financing. You could even use an auto repair loan to upgrade the features of your vehicle, but we recommend using a loan only for emergency repairs.

How Do I Apply For Auto Repair Financing?

After you’ve shopped around and compared rates and financing between different lenders and credit unions, you’ll generally go through an application process for the loan of your choice. In addition to submitting an application, you may then have to provide certain documentation, such as personal information, proof of income and your social security number. If you’re applying for a personal loan, you may also need to present your bank account information, pay stubs, tax forms and bank statements.

Once the process is complete, you should receive your funds.

Are There Auto Repair Financing Programs Available?

There are no programs per se to help with auto repair financing, but there are a number of companies partnered with auto repair shops that offer branded credit cards to assist customers. Talk to your regular mechanic to see if they offer any of these deals.

Can I Get Auto Repair Financing With Bad Credit?

If your credit score is too low for a personal loan, another option is to have someone cosign a loan with you. Not all lenders, including Rocket LoansSM, allow co-signers, but doing so could help you get the funds you need even with poor credit.

Final Thoughts: Get Back On The Road With Auto Repair Financing

Owning a car is expensive, and unexpected expenses can come out of nowhere. If you find yourself needing a little help getting your car back on the road, you have your pick of the auto repair loans discussed above.

If an unsecured personal loan sounds right for you, you can apply today with Rocket Loans® and get those auto repairs started.

Apply For A Personal Loan.

Explore your options today and see what's possible in one simple click.