A Complete Guide To Taking Out Loans For Car Repairs


If you have repairs that you can’t afford to repair and you don’t have an extended warranty on the vehicle, know that you are among many in this situation. Most Americans live paycheck to paycheck and an unexpected repair can cost you hundreds and even thousands of dollars.

Unexpected repairs are incredibly stressful, especially if you can’t afford to have them fixed. You can look into auto repair financing if you think the car is worth fixing, or you can consider selling the vehicle and getting a new car. There are a few other options as well.

Options When You Can’t Afford Your Car’s Repairs:

  • Auto repair loan financing
  • Sell your car and buy something cheaper
  • Find a mechanic who offers a payment plan
  • Get a credit card for repairs

 The auto repair financing option is typically the most popular followed by credit cards , however you should of course ask yourself if your car is worth fixing. Sometimes the answer is no and you’re better off selling it or trading it in for something else. You may be able to get a working vehicle for less than what your current car is worth with its issues. You can always finance a used car purchase if you can’t pay out of pocket. 

With the repair loan, the most important thing to do is to shop around and compare interest rates. You can get a loan for auto repairs by utilizing a personal loan option or even a payday loan though interest rates can be exorbitant in some cases. 

Auto Repair Loans

An auto repair loan is simply what it sounds like, a loan taken out to cover your mechanic bills after your car breaks down. Car repairs on average cost Americans about $1200 per year which is more than most can afford. Being able to break up this cost over several months can sometimes be a helpful arrangement for those who find themselves struggling to afford their repairs and who don’t have a warranty on the vehicle.

How Auto Repair Loans Work

Auto repair loans work similarly to other loans. You take out a principal loan amount from a lender and in return you pay payments on that principle plus interest. There aren’t loans specific to making car repairs, though there are credit cards for this purpose alone. Typically, a person will take their loan and apply the funds to their vehicle repairs paying the mechanic outright. They then pay back their principal amount typically on a monthly basis plus the set interest due at that time. 

Terms To Know

Here are some common terms that you are bound to come across as you make the preparations for financing car repairs. 

  • Annual Percentage Rate- Also referred to as APR, this is the rate at which the interest you owe on your loan will be repaid. So essentially this is how much it is going to cost you to get the loan. The percentage is calculated yearly and the interest is typically compounding. 
  • Down Payment- The down payment is how much money you paid upfront in cash. The car is paid for in full by your financier, it is they who get the down payment. Down payments are typically required for most loans 
  • Loan Term- This may also be referred to as the duration of your loan. This is how many months you are on the hook for paying off your debt. The length of the loan determines, along with APR, how much your monthly payments will be. 
  • Monthly Payment- This is simply how much you are going to pay back to your lender every month. Part of this will go towards reducing your principal amount and part will be paid as interest. 
  • Principal- This is the amount of your actual loan. It is the sheer amount that you borrowed and does not include the total cost of fees, and interest. 
  • Total Cost- This is how much the entire borrowing process costs you including the principal amount, fees, penalties and interest. 

Personal Loans As A Financing Option

A personal loan is a loan that you can use for anything. It is a great option for those who are looking to pay for their car repairs and can’t currently afford it. Funds usually take 24hrs to 7 business days to hit your account, but this depends on your lender. 

A personal loan is given in a lump sum and paid back over time using installment payments. Typically these take place every 30 days and include payment to the principal loan amount as well as interest. 

Not everyone will be approved for a personal loan. Approvals will be decided by a number of factors from the individuals debt to income ratio to their credit score. Similarly, better terms will be offered to those with better credit. This means the interest rate will be lower for those who show more financial responsibility in their history. 

You Can Get Personal Loans From The Following Sources:

  • Banks
  • Credit Unions
  • Online Lenders
  • Payday Companies
  • Title Loan Providers
  • New Credit Cards
  • Existing Credit Cards

Borrowing From A Bank

The traditional place to request a personal loan is a bank. They are a good place to start looking for approvals and comparing interest rates and terms in personal loans. Your bank already has a relationship with you. Contact your local or corporate branch and ask them about their personal loan options. 

Borrowing From A Credit Union

A credit union can be a great place to look for money to borrow, especially if a traditional bank doesn’t want to approve you for one. Credit unions tend to be more local and will have more lenient restrictions in some cases on whom they lend their money to and why. Look up the credit unions in your community and give them a call to discuss terms for a personal loan. 

Borrowing From An Online Lender

You can also look for a personal loan using an online marketplace, though you should exercise caution when using this source of lending. Lenders can be predatory, charging obscenely high interest rates and other unfavorable loan conditions and they get away with it by preying on the desperate. In some cases you can find an excellent lender in these online marketplaces, but do your research on the company and always read the fine print of a contract. 

Payday Loans

Speaking of predatory practices, payday loans have quite the reputation. In these lending scenarios, borrowers take out money against an upcoming paycheck. These tend to be small loan amounts which can be as little as $100 and as much as $1000, but that could be all you need to repair your vehicle. 

The reason these loans are considered predatory is the interest rates. Many payday loan companies request well over 25% APR and up to 400%  which can continue the debt cycle for many. These loans may be advertised as cash advance or check advance and there are many companies that offer them. 

Some states don’t allow payday loans because they prey on the less fortunate, but for some they can get you by on a car repair in a pinch. 

Title Loans

This designation of loan is also a short term loan option, but instead of the loan company asking for your paycheck as collateral, they request the title of an asset, usually a vehicle. When you are approved for a title loan, the title of the vehicle will go to the lender and the funds will go to you. When the funds have been repaid, the owner of the vehicle will get their car back. 

Failing to pay back a title loan often resorts in heavy penalty fees and if the issue drags out, vehicle repossession. 

APRs of a title loan can range from 25% to 300% which is incredibly high as far as loans go. For this reason and car repossession as the consequence of not paying this interest its advised to proceed with caution when borrowing from such lenders. 

Other Methods Of Borrowing Funds

If you’ve struck out with the items on the loan list, you can utilize other lending services to finance your car repairs. Credit cards are how many Americans choose to pay for their repair debt. 

Credit Cards

Whether you choose to utilize an existing card within your wallet or take out a new card, credit cards can get you by in a pinch. 

With many credit cards, the cost of carrying a balance at the end of your payment cycle will cost you a great deal in interest.

Choosing The Best Loan For You

Depending on who you are and what your personal financial situation looks like, the best loan for you will vary. Your best bet is to do as much research as possible making sure you understand each type of loan inside and out. Once you fully grasp the process in detail,  you can start  shopping around for the best deals. 

If you are someone with a lot of high interest debt: Your best bet is going with a lower monthly payment so that you can dedicate more liquid cash to paying off debt that is accruing more interest. 

If you are someone trying to build your credit score: stretch out your loan into a longer period. This will give you a lower monthly payment and more opportunities to pay your bill on time. Put down a big down payment to decrease your debt to income ratio and pump that extra money into putting the rest of your debt on minimum payments, or taking out new lines of credit. 

If you are not hurting for money: If you have a large, positive cashflow every month and you are looking for the most cost effective way to buy a vehicle then you should get the shortest term possible with the lowest interest rate that you can find. Put down a fat down payment and start taking big chips out of that loan every month. 

In conclusion, it is important to do your research when shopping around for a lender to help you pay off your car repairs. Find the right option that works for you by comparing each option and how much they will cost you both on a monthly basis (ensure you can afford these) and overall. 

To prevent yourself from being stuck in this borrowers situation again you should keep an emergency slush fund for unexpected expenses. In addition, consider a warranty to help you pay for your car repairs. 

Never Get Yourself Into Debt Over Car Repairs Again

Car repairs can be absurdly expensive, and you can expect those unexpected repairs before too long no matter what vehicle you drive. 

Depending on your vehicle it could cost you thousands of dollars to make repairs to components like the transmission and suspension. 

If you have to replace the engine block it could cost you more than $10,000. 

If that seems absurd to you, luckily you aren’t alone.

A vehicle service contract from Protect My Car can help cover the cost of these excessive repairs. In fact, you could pay as little as $100 dollars for that $9,126 transmission repair.

Yes, you heard that right.

For less that the cost of a cup of coffee each day, you can get coverage for:

  • Steering
  • Suspension
  • Engine
  • Transmission
  • A/C and Heating
  • Navigation and Electronics
  • …and so much more.

When you walk into the repair shop with a coverage plan from PMC, you can rest assured that you will never pay for these repairs listed here. You pay a $100 deductible, just like insurance and we pay the rest.

Does that sound like a fair deal to you?

If it does, just fill out the form below for a free quote, and see how great it can be to never have to pay for car repairs ever again.

About Protect My Car

Protect My Car is an extended auto warranty company. Our goal here at Protect My Car is to eliminate your worry of being financially responsible for an expensive mechanical breakdown. With our extended auto warranty, you don’t have to worry about being fully burdened with the cost of a covered repair.