Nearly all car owners will face unexpected auto repair bills, and paying for these types of expenses — often adding up to hundreds or even thousands of dollars — is impossible for many. Most people don’t have the money set aside for costly car repairs, especially in today’s rocky economic climate. Even if your insurance policy will cover the repairs, you typically have to pay a sometimes large deductible first.
You have several options when it comes to paying for expensive auto repairs. You can put the bill on your credit card, which could stick you with high interest rates in paying back the balance — depending on the agreement with your creditor.
Another option is to take out a personal loan. You can sometimes get a secured personal loan from your bank, if you have good credit and a long history of banking with the institution. Unsecured personal loans are more common for auto repairs, but these types of loans are considered “high risk.” They typically involve high interest rates and a tough qualification process.
If you have so-so or bad credit, an auto repair loan is likely your best option. Auto repair loans are different from personal loans, in that they’re considered “secured” because the loaned money is invested into an asset — your vehicle. These loans usually don’t carry the high interest rates that unsecured personal loans and credit cards do, and they often allow 24 months or longer for you to pay off the loan balance.
Auto repair loans are perfect for covering the repair costs and/or deductible amount, particularly if you aren’t one of the lucky few who have an excellent credit score or plenty of extra savings to pay for the repairs. Interest rates for these types of loans are typically lower than unsecured personal loans and more inline with the current prime interest rate.
Another bonus is that you can get up to $1,500 to $2,000 from a car repair loan. Most auto repairs fall into or below this dollar range. Because the loans are smaller, you can pay them off quickly — usually in less than one year. If you have some savings to put toward the repair costs, you can simply supplement with the loan. Doing so will keep the loan amount at a minimum and make paying back the balance easier.
Before you apply for an auto repair loan, you should consider several factors. First, decide the lowest amount of money possible that you’ll need to borrow. Compare interest rates among lenders to ensure that you’re getting the lowest rate available. Also, compare the different lenders’ loan agreements, studying the terms and conditions of the loan.
Ensure that the loan you choose allows a reasonable amount of time to pay back the borrowed amount and interest. The loan term can vary depending upon your credit score, the amount borrowed and the lender’s policies. For example, a loan to cover just a portion of your deductible would be rather small and may carry a repayment term of just 6 to 12 months. An auto repair loan covering nearly all the costs associated with a major repair, however, would be larger and carry a term of 24 months or longer. Like most other types of loans, you can avoid paying more in interest by paying off the auto repair loan as quickly as possible.
Look for an auto repair loan that has the lowest possible interest rate, the smallest total amount borrowed and the longest term. That way, your payments on the loan will be much lower, allowing you to pay back the loan faster and without missing a payment — which will, of course, help to improve your credit score as well. And ensure that the auto repair loan has no penalty for early repayment, especially if you plan to make larger payments than the stipulated monthly installment.
Also study the auto repair loan’s stipulations for what kinds of work it will cover. In some cases, car repair loans will cover only those repairs that will keep your vehicle in “working condition.” This means that the loan may not cover body work or cosmetic-type repairs. In other cases, auto repair loans will cover most types of repair work, including cosmetics. Keep this in mind if you need repairs that include body work, such as from an accident.
The bottom line is that you need your car in working condition to get to work, appointments and everywhere else. And with auto repair loans, you don’t have to let the cost of a breakdown or major repair get in your way.
