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Auto Repair Financing: 5 Ways to Pay

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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, those costs could put a big dent in your budget or create a financial emergency. Although paying cash is your most affordable auto repair financing option, we cover other solutions here:

First, contact your auto insurance provider

Before you jump into paying for repairs, check with your insurance provider or warranty company to see if your service costs would be covered.

If your car has been in an accident, your collision or comprehensive auto insurance coverage or the other driver’s insurance may pay for repairs. Depending on your policy, the insurance company may ask you to take the car to a recommended body shop where they have a direct repair program set up to handle all the paperwork and payments. However, you can still take the car to a repair shop of your choice and the insurance company will pay for the repairs.

Check your policy for the deductible amount, usually $500 or $1,000 — that’s the amount you have to pay out of pocket to the auto repair shop before the insurance begins to cover your service. Depending on the amount of the deductible and the severity of the damage, you may choose to pay for the repairs yourself without submitting a claim to the insurance company: An accident could cause your insurance rate to rise for up to three years. However, insurance companies recommend reporting any accident, no matter how minor.

Auto insurance doesn’t pay for mechanical repairs or maintenance, such as transmission trouble or new tires or brakes. If your car is under warranty or you purchased an extended service contract, check with your car dealer’s service department to see if it’s covered.

5 ways to finance an auto repair

1. Pay cash

The best way to pay for car repairs is with cash. If you have an emergency fund saved up, this may be the time to use it — this way, you can avoid finance charges that will add to your debt.

If you can’t cover car repairs now, you can budget for those you may need to make in the future. Consider these savings strategies:

  • Set aside a small amount from each paycheck to keep in a saving account.
  • Cut costs where you can, whether that means picking up meal planning or canceling unneeded subscription services.
  • Pay off loans early and use your savings to cover costs.
  • Use an app that helps you save money automatically.

Is this a good option for you?

Paying cash is always the cheapest option — you won’t have to pay additional amounts in interest. However, you may not want to totally empty your bank account in case another emergency pops up, and this option could require you to take weeks or months to save up enough money to cover costs. That won’t be a viable option for everyone.

2. Repair shop 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.

They often come with low- or no-interest introductory rates and offer an immediate way to pay for vehicle repairs. Not only that, many also offer other promotions and discounts to boot. 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.

Is this a good option for you?

Auto repair financing plans are usually easy to qualify for and quick to get. You can apply online or, in some cases, at the repair shop. If you don’t qualify for competitive deals like a zero-interest card offer, you may be able to snag alternative financing for no down payment and an interest rebate if you pay off the loan within a certain time frame.

If you’re confident you can pay off the balance before the end of the promotional period, these cards could be a lifesaver to get your car back on the road with no added costs. However, if there’s a chance you could fail to pay off your balance before the reduced interest offer ends, you may be better off exploring other options, which may be cheaper.

3. 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.

A personal loan may be unsecured or secured. Your qualification and terms for an unsecured loan will be based solely on your credit score and other financial information. 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.

The table below shows what kinds of payments and costs you can expect with a personal loan, based on your credit score:

Average unsecured personal loan APRs by credit band
Credit score Average APR Cost for a $2,000 auto repair repaid over 36 months
720+ 7.63%
  • $62.33 monthly payment
  • $2,243.95 total
680-719 11.88%
  • $66.31 monthly payment
  • $2,387.31 total
660-679 18.53%
  • $72.84 monthly payment
  • $2,622.16 total
640-659 26.15%
  • $80.74 monthly payment
  • $2,906.68 total
620-639 38.64%
  • $94.64 monthly payment
  • $3,407.02 total
580-619 65.70%
  • $128.33 monthly payment
  • $4,620.05 total
560-579 105.39%
  • $184.56 monthly payment
  • $6,644.26 total
Less than 560 113.62%
  • $196.95 monthly payment
  • $7,090.27 total

Is this a good option for you?

People with good credit scores are likely to qualify for unsecured loans at reasonable interest rates. However, secured personal loans could be a viable alternative if you want lower rates, a larger loan amount or would otherwise struggle to qualify for auto repair financing.

A personal loan can be a good option if you want to pay for car repairs in installments. You’ll know how much you have to pay and for how long, and you don’t have the pressure to pay off the loan before the end of an incentive rate period, like you would with an auto repair shop payment plan. However, this may not be a good option if you only qualify for high interest rates; a high rate can make repayment costly, on top of cutting into your budget.

4. Zero-interest 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 as long as 18 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 19.29%, 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 16.43%.

Is this a good option for you?

To qualify for a credit card with an introductory 0% APR, you’ll need good to excellent credit (a credit score of 670 and up). However, you could qualify for a credit card without an introductory offer with fair credit. The APR may be more affordable than a loan, depending on your circumstance. However, an auto repair payment plan could be more cost effective if you have fair or bad credit and can pay off your balance before the low-APR offer ends.

5. 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 and comes 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
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.

Is this a good option for you?

You must be a member of a credit union to qualify. As these loans are designed as a replacement to payday loans, if you’re looking for no credit check auto repair financing near you, this may be a viable option. However, some credit unions may still evaluate your credit and ask about other financial information.

If you’re a member of a federal credit union and need a small loan, a PAL can be a good way to get some cash quickly at a relatively low cost. Like other forms of borrowing, you should have a plan to pay it off within the term.

How to save money on your car repairs

  • Shop around: Unless your car is still under the manufacturer’s warranty or you bought a service contract with the dealer, you can take your car to an independent auto repair shop. This shop may be able to do the repairs for less money. Shop around for rates on standard car repair services such as oil changes and new tires. More complicated work – say, if your car is making a funny noise when it starts or stops – may require you to take the car in for an estimate.
  • Get recommendations: 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. Before you choose, check to see if repair shops are certified by the National Institute for Automotive Service Excellence (ASE), which offers this search engine for finding a certified car repair shop.
  • Bargain: While repair shops may not have a formal price-matching policy, if you have estimates from a couple other shops, they may be more willing to negotiate to get your business. You should also make sure to ask about any discounts or promotions they may offer. Keep an eye out for coupons for oil changes, tire rotation, air conditioning checkups and other common reasons to visit a repair shop.
  • DIY: Learn how to do some basic car repairs yourself. YouTube is a great source for how-to guides and videos. AutoZone has a video library that demonstrates how to do everything from flushing and filling your cooling system to replacing disc brakes. Repair manuals for your vehicle from the manufacturer or third parties can also guide you through major and minor repairs with step-by-step instructions — plus, they’re available online and in print.

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