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How to Pay for Auto Repair Financing

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Car maintenance and repair costs add up quickly, with the average American driver spending nearly $2,000 a year to keep their car running smoothly. If you’re not prepared with funds or auto repair financing, those costs could put a big dent in your budget or create a money emergency.

Although paying cash is usually your most affordable auto repair financing method, let’s also have a look at other solutions:

Use a loan to cover auto repair financing

Here are three borrowing options to consider:

Personal loan

Personal loans are installment loans that can be used for just about anything, including auto repair financing. As they have fixed interest rates, you’ll have set payments over your repayment term, which typically lasts 12 to 60 months. Unlike with an auto repair shop payment plan or certain credit cards, you won’t find interest-free offers on personal loans. Personal loans are generally available in amounts as low as $1,000 and may be unsecured or secured.

  • With a secured loan, you’ll offer up collateral to back the loan. Collateral could include vehicles, property, bank accounts or other valuables. As collateral reduces the lender’s risk, you’ll qualify more easily, and could receive lower interest rates and larger loan amounts. While your lender can seize your collateral if you stop making payments, secured loans may be more attainable for those with fair or bad credit since collateral helps offset the lender’s risk.
  • With an unsecured loan, lenders will rely more so on your creditworthiness. While borrowers can avoid having their collateral being seized if they aren’t able to repay the loan, these types of loan may be more difficult for someone with bad or fair credit to obtain without souring APR rates. For example, if you have a credit score of 669, what FICO considers the high end of a fair score, your average APR rate for an unsecured personal loan is going to be about 24.74% — more than double the average APR of an excellent credit score (720+).
Average unsecured personal loan APRs by credit band
Credit score Average APR* Estimated cost for a $2,000 auto repair repaid over 36 months*
720+ 10.73%
  • $65.19 monthly payment
  • $2,346.97 total
680-719 19.04%
  • $73.31 monthly payment
  • $2,639.23 total
660-679 24.74%
  • $79.20 monthly payment
  • $2,851.30 total
640-659 30.18%
  • $85.12 monthly payment
  • $3,064.41 total
620-639 37.09%
  • $92.85 monthly payment
  • $3,342.72 total
580-619 65.93%
  • $128.64 monthly payment
  • $4,631.03 total
560-579 102.36%
  • $180.05 monthly payment
  • $6,644.26 total
Less than 560 156.11%
  • $263.41 monthly payment
  • $9,482.76 total

*Rates accurate as of Oct. 13, 2021

Payday alternative loans

Payday alternative loans (PALs) are not payday loans. Payday loans are offered by online and storefront lenders and come with sky-high fees and interest rates. And while a PAL is also a short-term loan, it is offered by federal credit unions.

Since federal credit unions have APR rates that are capped at 28% for these types of loans, PALs come with affordable interest rates and better terms than regular payday loans. To take advantage of a payday alternative loan, you must be a member of a credit union that offers them.

There are two types of PALs, and not all credit unions offer both types:

Payday alternative loans: PAL I vs. PAL II terms
PAL I PAL II
APR Up to 28% Up to 28%
Repayment term 1 to 6 months 1 to 12 months
Borrowing limits $200 to $1,000 Up to $2,000
Application fee $20 max $20 max
Overdraft/NSF fees May be assessed Can not be assessed
Membership requirement Must be a credit union member for 1 month No waiting period
Loan limits One PAL loan at time, and no more than three within 6 months.

Title loans

While car title loans can be extremely expensive — some lenders charge APR rates as high as 300% — this type of loan may be useful if you have expended other types of loan opportunities. Despite the potential for high APR rates, car title loans come with a few benefits as well:

  • Car title loans are similar to secured loans as you’ll have to use your vehicle as collateral. This may make it easier for some borrowers, such as those with fair or bad credit, to qualify for a loan since the collateral makes it a less risky investment for lenders.
  • Because many lenders offer 25% to 50% of a car’s worth, this may make you eligible for a larger loan than you would get through a personal loan or credit card. However, this entirely depends on the value of your vehicle. You can find out how much your car might be valued at through resources such as NADAguides.

Before signing on the dotted line for a car title loan, be sure you fully understand the terms and rates you are agreeing to. If you don’t finish repaying the loan, your lender could take your car away as a way to compensate for the remainder of the loan as well as even sticking you with a repossession fee, in some cases.

To find the best rate and terms for your financial situation, shop around and compare offers.

Apply for an intro 0% or low APR credit card

Many credit card issuers offer an introductory 0% APR for a limited time in order to entice potential new customers. Credit cards can come with other perks as well, such as a cash bonus for spending a certain amount of money within the first few months of opening your account, or reward points or cash back on purchases you make. These benefits can make paying for car repairs less painful.

With an introductory APR offer, you’ll typically have between 12 and 15 months to pay off your balance. If you don’t pay off your balance before the offer ends, the interest rate will apply to the remaining balance. The average APR on new card offers is 19.47%, according to the latest LendingTree data.

If you already have a credit card, check its APR. Depending on your credit, it may offer a lower APR than you might get with a personal loan or another financing option. The average APR across open accounts that assessed interest is 16.30%.

Ask your repair shop about a payment plan

Most auto repair financing is offered as a payment plan in partnership with lending institutions. The plans may be offered as credit cards that can be used for expenses related to your vehicle. Some lenders work directly with the repair shop to pay the bill. There are several pros to going this route:

  • Lenders that work with car repair shops often offer low- or no-interest introductory rates and offer an immediate way to pay for vehicle repairs.
  • Many lenders offer other promotions and discounts you can use toward your car repairs. You could, for example, get discounts on tires, oil changes and other savings only available to cardholders.

However, there is an important caveat with repair shop payment plans: While a low- or no-interest introductory rate sounds like a good deal, read the fine print. The interest rates for these plans typically shoot up significantly after the introductory period and will charge interest from the purchase date if you have a remaining balance.

For example, assume you have a card that offers zero interest for six months, but a 29.99% rate thereafter. If you started with a $2,000 balance and don’t pay it off in time, at the end of that period you’ll be charged six months’ worth of interest at that rate for the full $2,000, as well as any remaining balance that you might still owe.

That much interest can add up quickly, so it’s best to pay off the card within the promotional period. As with all financial agreements, make sure you understand the full terms before committing.

Save money on your car repairs

Even if you find yourself having to spend several thousand dollars on repairs, you can still save money on your auto repair financing.

Shop around as well as look for price matching opportunities for estimates on car repair services such as oil changes and more complicated work. Check online reviews and talk to family and friends to help you find a reliable mechanic that won’t take you for an expensive ride.

Finally, one of the cheapest ways to save money on fixing your car is to learn how to do basic repairs yourself. You can find videos on YouTube and Autozone, and read repair manuals from your car’s manufacturer.

No matter your approach to auto repair financing, afterward, be sure to save up money for an emergency fund so next time you’ll be in a position to pay cash.

 

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