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When your car breaks down, the right loan can help you get back on the road. Avoid payday loans and title lenders that require you to exchange your vehicle as collateral, as they often have high interest rates.
Consider personal installment loans with fair and easy-to-understand upfront terms and low rates. Generally, you can apply online and receive funding within a day of approval.
1. Interest rates
Some auto repair shops offer financing through branded credit cards or payment plans, which can save you on interest rates. If you’re able to pay off the balance before the 0% introductory period ends, you can save hundreds in interest charges. However, this type of financing can require a hard credit check and may impact your score.
Personal loans can be an affordable way to finance an auto repair, particularly if you qualify for an online lender with low interest rates. For example, PenFed https://best-loans.co.za/dental-loans/ Credit Union offers a great rate for borrowers with fair credit and no fees, while Upgrade and Rocket Loans have excellent rates for those with good to perfect credit.
Other types of financing to fix your car include payday or title loans, which typically require you to exchange your vehicle’s title for the loan. These short-term loans must be paid back within a month or your vehicle will be repossessed. They also come with triple-digit interest rates and can be a costly alternative to a car repair loan.
For a less expensive option, you can try to find an unsecured loan with a low minimum loan amount and no origination fee. You’ll want to compare different lenders to find the best deal for your specific situation. For example, PenFed has a fairly low minimum loan amount and offers a discount for setting up automatic payments. You can also check out our picks for the top personal loan lenders to find an offer that works for you.
2. Fees
The type of loan you choose and your lender’s unique fees will affect the cost to borrow. Your credit score, loan amount, and repayment term will also impact the total costs. Consider all of these factors when deciding whether or not borrowing money to cover auto repair expenses is worth it.
Personal loans offer fixed interest rates, which make it easier to budget for monthly payments. However, if you have bad credit, you may face higher rates or a lower maximum loan amount. If this is the case, it might be more affordable to borrow against your home equity or use a payday or car title loan.
Some mechanics and repair shops partner with lenders to offer financing options to their customers. These can take the form of payment plans or a branded credit card that offers promotions and discounts, as well as low- or no-interest introductory periods. However, be sure to read the fine print and check the terms and conditions carefully. Fees like origination fees and late payment penalties can add up quickly.
Another option is to ask family or friends if they can lend you the money you need to cover your expenses. Just be sure to put the agreement in writing so you avoid straining your relationships. And, if possible, try to save up for these unexpected expenses in the future.
3. Term
If you don’t have family or friends to lend you money, it may be time to apply for an unsecured personal loan. These are installment loans, which you pay back in fixed monthly payments over time. You can get approved in minutes, and funds can be deposited into your bank account as soon as the next business day.
You’ll need to provide your income, credit scores and debt-to-income ratio (DTI) to prequalify. Your lender will then determine how much you can borrow based on your combined loan-to-value ratio (CLTV), which takes into account both what you owe on your mortgage and how much you want to borrow for your auto repair(s).
A longer repayment term means lower monthly payments but higher interest costs over the life of the loan, while shorter terms mean higher monthly payments but less overall interest. Be sure to review your loan terms carefully for any fees and penalties, as well.
In addition to personal loans, some mechanics and shops offer payment plans or financing. These can be a good option, as long as you’re comfortable with your mechanic or shop charging more than you would pay if you took out a personal loan. The best part about these options is that the terms and conditions are typically clearly outlined up front, so you’ll know exactly what to expect from your car repair financing.
4. Down payment
Some lenders require a down payment to reduce the amount of loan you need, which can help with your debt-to-income ratio. This could be especially helpful if you have a low credit score, because it will make the lender feel less risky by reducing the total amount of money you need to borrow. However, it is always best to save as much as possible before applying for a loan, so you can minimize your debt and interest expenses.
Some mechanics partner with lenders to offer their own financing options, which may be in the form of a branded credit card or a car repair payment plan. These can offer 0% interest APR introductory periods for 6 – 21 months, which can save you money if you pay off the balance before the introductory period ends.
It can be uncomfortable to ask a friend or family member for money, but if they are willing to help you out, it can be a great way to bridge the gap between how much you have and what you need for car repairs. Just be sure to communicate clearly about whether the money is a gift or a loan and put the repayment terms in writing so you don’t end up putting a strain on your relationship.