When to pay for car repairs with a personal loan (and when not to)

Auto repair loans can help you cover the cost of vehicle repairs. Qualifying will depend on your credit score and debt-to-income ratio.

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If you’re facing car repair costs that you can’t pay out of pocket, an auto repair loan may help. Learn how they work and where to get one. (Shutterstock)

Repairing your car can get expensive — especially with today’s rising inflation.

If you’re unable to cover a pricey bill, an auto repair loan — which is a type of personal loan — may be an option. Here’s how auto repair loans work and how to determine if one is right for your unique situation.

If you’re looking for a loan to cover vehicle repairs, Credible makes it easy to see your prequalified personal loan rates from various lenders, all in one place.

What is an auto repair loan?

An auto repair loan is a type of unsecured personal loan that you can use to cover the costs of fixing a vehicle. This could include labor costs, parts, or even the rental car you need while your car is in the shop. 

Auto repair loans have a few key advantages, particularly when compared with other financing options. For one, they allow you to spread the cost of your car repairs over many months or years. Since they’re usually unsecured, they don’t require collateral — and your car, home, or other assets can’t be seized if you fail to make payments. Finally, these loans tend to have lower annual percentage rates than credit cards, which often have APRs well into the double digits. 

On the downside, taking on an auto repair loan will essentially mean having two car loans — and two monthly payments. They’re also not great if you have a low credit score, as this could mean paying a higher interest rate (or not qualifying at all). 

Auto repair loans are available at many banks, credit unions, and online lenders. You’ll want to shop around if you’re considering one of these loans, as rates, fees, and terms can vary from one lender to the next. 

How much does an auto repair loan cost?

The cost of an auto repair loan — or any personal loan, for that matter — can vary widely. Your credit score, the loan amount, and your repayment terms will all play a role in your long-term costs. Your lender, and the unique fees it charges, will also influence your costs to borrow.

Generally speaking, the higher your rate and balance are and the longer your term, the more you’ll pay in interest. Lower rates, lower balances, and shorter terms will reduce your interest costs in the long haul.

To get an idea of what an auto repair loan might cost you, use Credible’s personal loan calculator.

3 times when it may make sense to get an auto repair loan

An auto repair loan isn’t right for everyone, but here are some scenarios where it may make sense to get one:

  • Your repair costs are more than you can pay out of pocket but less than the cost of a replacement vehicle. If repairing your car is clearly more affordable than replacing it — and you don’t have the cash to do it — then an auto repair loan can be an option to explore.
  • Without the loan, you’d need to put the repair costs on a high-interest credit card. If you’d otherwise need to cover the vehicle repairs using credit cards, payday loans, or another high-APR product, then an auto repair loan or personal loan could be a more affordable option.
  • You have a good credit score. If your credit score is high, then you could likely qualify for a low interest rate, making an auto repair loan an affordable way to finance your repairs.

Keep in mind that not all financial institutions offer the same rates and terms, so it’s important to shop around for your auto repair financing. Compare at least a few options before deciding which company to go with.

Visit Credible to compare personal loan rates from various lenders, without affecting your credit score.

3 times when it may make more sense to skip the loan or buy a new car

There may be times when it’s wiser to explore other options instead of taking out an auto repair loan: 

  • Your credit score is low. If you have bad credit and don’t have a cosigner, it could be more challenging to qualify for an auto repair loan.
  • Your car is still under warranty. In this case, your warranty provider may cover some of the repair costs.
  • The repair cost is almost as much as a newer vehicle. If the repair costs are significant, you may want to skip the repairs entirely and replace your vehicle with a comparable used car instead.

Can you get an auto repair loan with bad credit?

Most auto repair loans are unsecured, so their terms are based on your financial profile and credit history. While it’s possible to qualify for one with bad credit, it typically means paying higher interest rates. This equates to a higher monthly payment and more long-term interest costs.

Sometimes, if your credit score is low, the lender may also require you to offer collateral or add a cosigner to your loan application. A cosigner is someone with good credit who agrees to share in the responsibility of the loan with you (they’ll only make payments if you fail to). 

How to get an auto repair loan

Getting an auto repair loan is fairly simple and, with many financial institutions, can be done entirely online.

To get yours, you can:

  • Determine how much you need. Get an estimate from your auto shop that details your expected repair costs. You may want to ask for a loan slightly larger than this in case labor or parts come in higher than expected.
  • Shortlist a few lenders. Mix up the types of institutions you consider, including your main bank, a credit union, and an online lender.
  • Apply for a loan quote with each. To prequalify with a lender, you’ll need to fill out a short form and provide some basic personal and financial information.
  • Compare your options and apply with the lender you choose. Look at the fees, rates, terms, and other details of each loan quote, and choose which lender you’d like to work with. You’ll need to submit an official application and may need to provide required additional documentation, such as bank statements, pay stubs, or tax returns.
  • Finalize your loan paperwork. If you’re approved for the loan, you’ll sign a loan agreement. You should get your funds within a few days, though some lenders can fund loans the same or next business day after you’re approved.

Once you have your loan funds, you can use the money as necessary. Rent a temporary vehicle, pay your mechanic, or save some for the paint job you’ll need at the end. 

Just remember: You’ll need to start repaying your loan immediately, so budget accordingly. Make sure you have the funds to cover that first payment, and consider setting up automatic payments to ensure your payments are never late.

If you’re ready to apply for an auto repair loan, Credible lets you quickly and easily compare personal loan rates to find one that works for your unique needs.