Car problems can feel like an uphill battle to fix, especially if you don’t have upfront cash to cover these expenses. However, you are not alone, an AAA survey found that only one-third of Americans are able to cover any unexpected car repair expenses.
Auto repair loans can substantially reduce the stress of these unexpected expenses and help your car start working again in no time. Let’s take a look at how this is possible!
What is an auto repair loan?
An auto repair loan can be used to cover any expenses that are incurred outside of your insurance or warranty policy. There are various types of auto repair loans that can help assist in covering these costs.
Since one’s insurance or warranty policy might not cover your needed repairment expenses, auto repair loans are an option to help cover these expenses. Due to the different types of loans, some may offer certain benefits that are best suited for your needs.
How to finance an unexpected car repair
There are many different types of auto repair loans available, let’s dive into some of the most common of these loans to figure out which one may be right for you.
Personal loans are common ways of financing an unexpected car repair. This loan could give you a monthly payment to pay back the amount borrowed.
Moreover, these types of loans typically have a fixed interest rate meaning the monthly payment will not fluctuate. However, depending on one’s credit history and score, these interest rates can range from less than 8% to around 18%.
If your credit score does not allow you to access the interest rate you would like, you could look into getting a co-signer for the loan.
Payday loans is a type of loan that grants the borrower a specific amount of cash on the basis that this amount will be paid back once the borrower has their next paycheck. Usually, these types of loans have high interest rates, which can go up to 36%.
Title loans are a type of short-term loan. Essentially, they use one’s vehicle as collateral in case the loan is defaulted. For this reason, these loans typically range around 25% to 50% of the vehicle’s overall value according to the Consumer Financial Protection Bureau.
Typically, title lenders charge higher interest rates and fees than personal lines of credit. But, this loan can typically be processed the same day and usually there is no credit check. Because there is physical collateral ( your vehicle ) these loans can assist those who need money fast and are willing to possibly pay extra fees for quick funding.
Existing credit card
Depending on your credit card’s APR and available credit, utilizing your existing card could be a good option. For example, if you shopped around for personal loans and found that the interest rate offered was around 18% and your credit card’s APR is 15% then using your credit card may be a preferable option.
However, look over your APR since credit cards typically do have higher interest rates which can cause the amount you owe to grow at an exponentially high rate.
New credit card with low APR
In comparison to using your current credit card, when opening a new credit card there are often offers on having a low APR. Moreover, there are sometimes introductory discounts in which you can get a very little interest rate for a specific amount of time.
This may be an attractive offer. However, one should pay attention to the time they will need to pay off the debt. Since once this introductory period is over, the APR could increase.
Mechanic payment plan or branded credit card
Depending on your local mechanic or auto parts stores, some offer financing options for car repairs through branded credit cards. Due to this, you may also be able to get set up on a payment plan through your mechanic and be able to cover these costs over a set period of time.
Home equity loans
Although not typically advised, one financing alternative option one can look into is a home equity loan. This type of loan allows you to convert your home’s equity into cash.
Even though terms may vary, these types of loans typically have a term of 5 to 30 years which could be substantially longer than needed.
Dip into your savings
Staying out of debt is always a wise choice, so if you have any money available it may be a good idea to use it towards your auto repairment expenses.
However, you may not want to drain your savings completely.
How to pick the right financing option for you
Prior to taking out a loan, one should understand their financial position. This will help allow you to understand what option may be best financially with your current situation.
Check your financial standing
To understand your financial standing, overview what your current finances look like. This can include looking at your current credit score if you need to pay off any debt and the amount of cash that is currently in your accounts.
Moreover, by looking at these financials you can get a better idea of what lenders may offer you. This is a crucial step since it will help allow you to have a clear picture of where you are financially and what might be the best option for you.
Create a budget
When looking over your expenses and general finances, you can help create a clear budget. You can see what you can cut out of your spending habits to save for these repair expenses or what could be used towards a loan.
One can enforce a strict budget if need be for a short period of time to ensure they are reaching their financial goals. Moreover, creating a budget can help you see where most of your expenses are coming from and how you may be able to reduce that amount in the future.
Don’t settle for the first deal offered. It is recommended to compare options and quotes from multiple resources such as online lenders, commercial banks, or credit unions to find the best option for you. Additionally, one could calculate the APR on their current credit card and what they can contribute to a monthly payment if the loans they were offered were not desirable. This is a very important step because in order to help receive the best auto refinancing option available for you one should compare all possibilities.
Find what auto repair option is right for you
Car issues can feel overwhelming, however, there are many options for you to choose from when it comes to finding an auto repair loan. Depending on one’s financial standing and credit score, some of these loans may achieve just what you are looking for.
Having a good credit score is one of the ways to help ensure you are getting the best loan possible for your needs. Become a MoneyLion Credit Builder Plus member to get access to a Credit Builder loan to not only help increase your credit score but you could pay off your auto repair loan in the process. To learn more about MoneyLion Credit Builder Plus, click here.
How do I pay for an unexpected car repair?
You can pay for an unexpected car repair in various ways, this can include taking out a loan.
Can you negotiate car repair costs?
Yes, you can always try to negotiate car repair costs. It is important to do your research to recognize when you think you are being charged too much.