Owning a car comes with plenty of expenses. While you may be used to paying for recurring costs like gas or car insurance, an unexpected repair can put a huge dent in your budget. In fact, the average car repair can cost anywhere from $195 to $1,986, đŻaccording to FIXD, an online resource that provides drivers with information to help maintain and fix their vehicles.
Such a large expense could cause financial iâssues for many car owners. If your vehicle needs repairs, taking out a personal loan could help spread𤥠out the cost of a major bill. But before you start submitting loan applications, consider how auto repair loans work and what to know before choosing one.
Hereâs eveđŚrything you need to knđśow about auto repair loans:
- What is an auto repair loan?
- How do these loans work?
- Auto repair loan requirements
- Where can you get an auto repair loan?
- 14 lenders to consider for these loans
- How do you apply for auto repair financing?
- What are the benefits of borrowing?
- Can you get a loan if you have bad credit?
- Alternatives to auto repair loans
What is an auto repair loan?
An auto repair lođ¸an is a personal loan that lets you borrow a lump sum of money to use for your own financial needs â including fixing a vehicle.
Whether you’re in a car accident that isn’t fully covered by auto insurance or you need some work done in order to pass your annual inspection, using a personal loan for car expenses gives you flexibility to use the funds as you see fit.
The downside is that you’ll need a good credit score to qualify for the best rates. You’ll also be adding another bill to your monthly budget, which could cause some financial distress or take away from other financial goals.
If your credit score is less than perfect, applying with a cosigner (or co-borrower) with good credit can increase your chances of getting approved. Even if youâre able đ˝to qualify, applying with a creditworthy co-applicant might help you get a better rate than you would on your own. Just be aware that if youâre unable to keep up with payments, your cosigner will be on the hook for paying off your loan.
Another option if you donât have good credit: applying for a secured personal loan thatâs backed by collateral, such as your wheels, bank saŕšvings or another asset. The downside of secured auto repair loans is that you could forfeit the collateral if you default on the debt.
How do auto repair loans work?
As an installment loan, a personal loan used for car repairs comes with a fixed payment each month for a set period â typically between one to seven years. For borrowers with good credit, inŕą terest rates are typically lower compared to credit cards, and you know exactly how long it wię§ll take to pay off your balance in full.
Additionally, unlike an auto loan used to purchase a vehicle, personal loans are usually unsecured, meaning you’re not putting any of your assets at risk.
The amount you can borrow depends on your income and other monthly debt payments. This is called your debt-tođ -income ratio (DTI). Most lenders allow a maxiđ˛mum DTI of 35% to 40%, meaning up to 40% of your monthly, pre-tax income can be used for paying off debt. If you have a high DTI, you may only be eligible for small personal loans.
Auto repair loan requirements
Every lender has its own approval requirements for a personal loan. Here are typical reqđ°uirements to consider:
- Credit score: Lenders perform a credit check to look at your history involving debt. They use this review to determine your current financial health and how likely you are to repay the loan. You could still get approved for an auto repair loan with a lower credit score, but you’ll have to pay a higher interest rate.
- Debt-to-income ratio: Another consideration is how much you earn versus how much you owe. A lower DTI shows lenders that you have room in your budget to afford another monthly bill.
- Employment history: Job stability is an important part of your loan application. Lenders typically want to see that you’ve been in the same industry for at least two years.
Where can you get an auto repair loan?
Many financial đ şinstitutions offer personal loans that can be used for auto repairs. Most banks and credit unions offer these products.
14 lenders to consider for auto repair loans
If youâre in the market for an auto repaâ¨ir loan, consider the following Credible partner lenders:
1. Achieve
- Loan amounts: $10,000 to $35,000
- Minimum credit score: Undisclosed
- Time to fund: Within 24 to 72 hours of approval
2. Avant
- Loan amounts: $2,000 to $35,000
- Minimum credit score: 550
- Time to fund: As soon as the next business day
3. Axos
- Loan amounts: $10,000 to $50,000
- Minimum credit score: 700
- Time to fund: As soon as the next business day
4. Best Egg
- Loan amounts: $2,000 to $50,000
- Minimum credit score: 600
- Time to fund: 1 to 3 business days after verification
5. Discover
- Loan amounts: $2,000 to $35,000
- Minimum credit score: 660
- Time to fund: As soon as the next business day after acceptance
6. LendingClub
- Loan amounts: $1,000 to $40,000
- Minimum credit score: 600
- Time to fund: About two days
7. LendingPoint
- Loan amounts: $2,000 to $36,000
- Minimum credit score: 580
- Time to fund: As soon as the next business day
8. LightStream
- Loan amounts: $5,000 to $100,000
- Minimum credit score: 660
- Time to fund: As soon as the same business day
9. OneMain Financial
- Loan amounts: $1,500 to $20,000
- Minimum credit score: None
- Time to fund: As soon as 1 to 2 business days after approval
10. PenFed Credit Union
- Loan amounts: $600 to $50,000
- Minimum credit score: 660
- Time to fund: 2 to 4 business days after verification
11. Prosper
- Loan amounts: $2,000 to $50,000
- Minimum credit score: 640
- Time to fund: As soon as one business day
12. SoFi
- Loan amounts: $5,000 to $100,000
- Minimum credit score: Undisclosed
- Time to fund: 3 business days
13. Upgrade
- Loan amounts: $1,000 to $50,000
- Minimum credit score: 560
- Time to fund: Within a day of verification
14. Upstart
- Loan amounts: $1,000 to $50,000
- Minimum credit score: 580
- Time to fund: As fast as one business day
How do you apply for auto repair financing?
If youâre ready to apply for an auto repair lâoan, follow these five stepđs:
- Decide how much money to borrow: Consider both how much you need, as well as how much you can afford to repay each month. Make sure to only borrow what you need to avoid unnecessary debt.
- Shop around to compare multiple lenders: When shopping around for an auto repair loan, itâs a good idea to compare as many lenders as possible and prioritize those that offer prequalification. This will help you get the best interest rate and lowest fees. Also consider the loan term, which impacts your monthly payment and how much interest youâll pay over the life of your loan.
- Choose your loan option: Carefully read all the terms and conditions of each loan offer to choose the best option for your unique financial situation.
- Submit an application: After youâve found the best loan option for your needs, itâs time to submit a formal application. Be prepared to provide basic personal information such as your name and address, as well as financial documents such as recent pay stubs and tax returns. Much of what you supply here will be to verify what you may have mentioned during the prequalification process. Keep in mind that when formally applying (unlike while prequalifying), youâll be subject to a hard credit check that can temporarily impact your credit.
- Receive the loan funds: Each lender’s funding time varies, but you’ll likely have the money deposited into your account within a few business days after your application is approved. Many online lenders are able to release loan funds within a day or two of approval, while traditional lenders like banks and credit unions may take up to a week.
What are the benefits of getting an auto repair loan?
UnsecurđŚed auto repair loans come with several benefâits, including:
- No collateral used to secure the loan
- Lump sum of cash
- Fast funding times
- Lower interest rates compared to credit cards or payday loans (for qualifying borrowers)
- Fixed payment for easier budgeting
Can you get a loan for auto repairs if you have bad credit?
Your credit score directly impacts your eligibility for a loan, as well as what interest rate you qualify for. The higher your interest rate, the more your monthly payment will be, and the more you’ll pay for the loan over time.
But you still may be able to qualify even if your credit score is below average. If you have trouble getting approved, you may be able to secure the loan with some type of personal asset, or getđ a family member or close friend to serve as a cosigner or co-borrower (if you share ownership of the car in question).
Alternatives to auto repair loans
In additionđĄ to auto repair lâoans, here are some other options to consider to help fix your vehicle:
- Payday loans: A payday loan is a short-term loan with high fees and APRs as high as 400%. Loan amounts usually max out at $500. Full payment is usually due in full within two to four weeks and is taken directly out of your bank account. You’ll incur even more fees if the loan is renewed. Because of these factors, itâs best to avoid payday loans, which are often predatory by nature.
- Title loans: A title loan is a type of short-term financing that uses your car title to secure the borrowed funds. That means if you don’t repay the debt, the lender can repossess your vehicle. Given that title loans can be difficult to repay â and trap you in a cycle of debt â itâs another option to treat as a true last resort.
- Credit card: Credit cards are another expensive type of financing. But you can make it more affordable for your car repairs if you qualify for a card that comes with a 0% APR introductory period. Keep in mind that if youâre unable to pay off your card before the introductory period ends, the cardâs regular APR will kick in and apply to any remaining balance. Check your budget and cash-flow to confirm youâre capable of a quick payoff before considering this route.
- HELOC: While many people use home equity lines of credit for home improvement projects, they can also be used for general purposes like a car repair. Instead of borrowing a lump sum, a HELOC lets you draw on your account as needed, so you’re only charged interest on the outstanding balance. Just be aware that with a HELOC, the loan is secured with your house as collateral. This means that your house is at risk of repossession if youâre unable to make payments.