Auto Repair Financing: How To Pay for Auto Repairs When You’re in a Pinch

 

Auto Repair Financing: How To Pay For Auto Repairs When You're In NeedIf you own a car, you are probably familiar with the financial problems that come with maintaining it. After all, vehicles can be expensive, especially if you have an older car or a car with unusual or imported parts.

The American Automobile Association, otherwise known as AAA, found that the average total cost of owning and operating a new car was $10,728 in 2022, or roughly $894 per month. Maintenance and repair costs are $0.968 per kilometer. Since the average person drives 13,476 miles per year, annual maintenance costs drop to about $1,304.

If your vehicle needs repairs, you may find it difficult to pay for them out of pocket. But with auto repair financing, you can tackle any maintenance or repair costs without draining your bank account.

The best ways to finance car repairs

When it comes to financing auto repairs, there are several ways to cover the cost. Two of the most popular options include low-interest credit cards and personal loans. Each financing option has its advantages and disadvantages, so you should know before choosing one.

Credit card

One of the easiest ways to pay for car repairs is with a credit card. Not only are credit cards convenient, but there's a good chance you already have one or two. This makes them especially useful in times of financial distress or an emergency.

When you use a credit card to pay for car repairs, you have the added benefit of time. Unlike using cash, you don't have to worry about paying the full amount upfront. Instead, you'll usually have several months or even years to pay off the balance. However, you will have to make a minimum payment every month.

The downside is that most credit cards come with interest that is added to the card balance. According to the Federal Reserve, the average credit card interest rate is 22.16%. The rate is primarily based on your credit score, so you may get a higher or lower rate.

Before using a credit card to finance auto repairs, consider how much the auto repairs will cost. Also, make a plan for how long it will take to pay off your credit card bill. The sooner you do it, the less you'll pay in interest.

There are also 0% introductory APR credit cards that are reserved for borrowers with good or better credit. With one of these credit cards, your balance will not accrue interest for a period of time. For example, Capital One's VentureOne Rewards credit card has a 0% APR for the first 15 months. As long as you pay off your card before the end of the introductory period, you won't have to pay anything in interest.

A personal loan is a type of loan that you can use for almost any reason, including car repairs. Many personal loans are unsecured, meaning you don't need collateral to get the funds.

However, you usually need good credit, a steady income, and a low debt-to-income ratio to get a loan with the best rates. If your credit score isn't high enough, you may end up with a higher rate or shorter repayment period. Or maybe you won't get a large enough loan to cover your car repairs.

With most personal loans, you will need to make fixed monthly payments towards the principal balance and interest. When you get a loan, you should receive a payment schedule that tells you how much you will pay and for how long. The repayment period usually ranges from a few months to a few years.If you make each payment on time, you will be able to pay off the loan on schedule. If the lender doesn't charge a prepayment penalty, you can even save money on interest by paying off the loan early.

Before choosing a lender, compare several options to see which offer the best rates and terms. As with credit cards, the higher the interest rate, the more you end up paying. But beware of other fees too, as some lenders charge application fees, origination fees and other fees.

If you're not sure where to find a lender, start with your bank or credit union. They may offer financing options to help with your car repairs. If not, or if they charge more than you're comfortable with, look at private online lenders instead.

Deposit

Some companies, like Earnin and Dave, allow you to borrow money from your upcoming paycheck a few days early. These cash advance applications are useful because you can usually get several hundred dollars within a day or two of requesting it. And since you're borrowing against your own paycheck, you don't have to worry about good credit or low DTI. As an added bonus, many cash advance apps are also free to use.

However, using cash advance applications also has one disadvantage. Specifically, taking money out of an upcoming paycheck could put a strain on your budget later. And if you need the money right away, you may have to pay a fee to expedite the transfer to your bank account.

Only ask for a cash advance if you're sure you'll still have enough money to pay other expenses or bills once you receive the rest of your paycheck.

Mechanics financing

Some auto mechanics have their own auto repair financing options. Others work with banks or other financial institutions to provide financing to customers. In some cases, you can even get a payment plan that gives you time to pay what you owe.

Check with your mechanic to see what options are available. Ask about any fees or interest. And don't forget to read the fine print before signing up.

Other financing options for car repairs

If none of the previous options are quite right, here are some alternatives to consider:Loan from friends or family: Borrowing money from someone you know can be a great option. Not only does it not require a credit check, but you usually won't have to pay any interest or other fees. Make sure you can reliably repay what you owe.

Loan: A loan is a short-term loan that uses your car as collateral for funds. You can usually borrow from 25% to 50% of the vehicle's value. You'll also usually have 15 to 30 days to pay back what you owez, plus interest. This can be risky because defaulting on the loan can result in the loss of the car. But it can also be useful in an emergency.

Payday Loan Alternative: PALs offered through credit unions are much more regulated than high-interest payday loans. You can borrow up to $2,000 if you meet the credit union's requirements. You'll also usually have anywhere from a month to a year to pay back what you owe, plus interest.

Emergency Savings Fund: If you have an emergency fund, consider using it to cover your car repairs. Just make sure you max out your fund when you can so you have it in case of an emergency in the future.

Final shot

Paying for auto repairs can be difficult, which is why it's important to consider auto repair financing options. This could mean using a low-interest credit card 

Owning a vehicle undoubtedly brings convenience and freedom, but it also comes with its fair share of responsibilities such as maintenance and repairs. Unexpected car breakdowns or accidents can unfortunately put a strain on your finances and put you in a bind. 

The cost of auto repairs can be significant and cause financial stress, especially if you don't have enough savings to cover the cost upfront. However, with auto repair financing options available, you can get your vehicle back on the road without breaking the bank. In this article, we'll explore different auto repair financing solutions and how they can help you through tough times.

Car Repair Financing Explained:

Auto repair financing is a financing solution that allows vehicle owners to pay for car repairs over time, rather than paying the full cost up front. It helps individuals facing unexpected repair expenses to effectively manage their budgets and avoid the burden of lump sum payments. These financing options are often offered by third-party providers, including banks, credit unions and online lenders.Advantages of car repair financing:

 Immediate access to repairs:

One of the most significant benefits of auto repair financing is immediate access to basic auto repairs. You no longer have to put off repairs due to lack of funds and ensure that your vehicle remains safe and functional.

 Repayment flexibility:

Auto repair financing offers a variety of installment plans with flexible terms to accommodate a variety of financial situations. Whether you prefer short-term or long-term financing, you can find a solution that fits your budget and needs.

 Save your savings:

By opting for car repair financing, you can save your emergency savings for other unforeseen expenses or use it for basic everyday needs. This financial cushion can provide peace of mind during challenging times.

Types of car repair financing:

 Personal loans:Many individuals choose personal loans to finance their car repairs. These unsecured loans provide a lump sum that can be used for any purpose, including car repairs. Personal loans often have fixed interest rates and predictable monthly payments, making budgeting more manageable.

 Credit Cards:

Another option is to use a credit card for auto repairs. If you have a credit card with a sufficient credit limit, it can cover the expenses. However, it is essential to pay off the balance as quickly as possible to avoid accruing high interest rates.

 Car service financing:

Some car repair shops cooperate with finance companies and offer self-financing options. These programs may come with promotional interest rates or deferred interest periods, making them attractive for emergency repairs.

 Secured loans:

For vehicle owners who own the cars outright, secured loans may be an option. These loans use the car as collateral, which often results in lower interest rates compared to unsecured loans.

Tips for choosing the right car repair financing option:

 Compare interest rates and terms:Compare interest rates, repayment terms and other fees when considering auto repair financing. Choose an option with reasonable terms that will not burden you with high interest costs.

 Check for hidden charges:

Be wary of any hidden fees or charges associated with the financing option. Read the terms and conditions carefully before signing the loan agreement.

 Assess your ability to repay:

Assess your financial situation to make sure you can comfortably meet the monthly payments without straining your budget.Auto repair financing can be a lifesaver when you find yourself in a bind with unexpected car repairs. By understanding the different financing options available and choosing the right one to suit your needs, you can get your vehicle back on the road without sacrificing your financial stability.

 Be sure to research and compare different lenders, terms and interest rates before making a decision. This will leave you better prepared to confidently handle any future auto repair emergencies.