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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.
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.
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|
|Less than 560||113.62%|
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%.
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|
|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.|
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.