Finding the best car repair loans and options means knowing what questions to ask first
Car repairs are the #1 reason people report getting forced into debt and eventually bankruptcy. More than any other reason from overspending to gambling, emergency expenses on your car could be the most dangerous thing you face financially.
That doesn't mean the occasional car repair needs to push you into financial ruin. There are options from car repair loans to crowdfunding, refinancing and other choices you can make to handle the situation.
Making the best of a bad situation means knowing your options and knowing which questions to ask. Let's look at those options first before getting to the questions and comparing car repair loans.
What are Car Repair Loans?
Car repair loans can actually mean a few different solutions from refinancing to personal loans but the basic idea is the same. You’re borrowing money for emergency repairs on your car.
What most people don’t understand is that it’s not quite as simple as it seems.
Sure, your car isn’t working and you need a way to get around but there are a few questions you need to ask before taking on that debt.
That’s what I want to do here, get those questions out there so you can make a better decision when it comes to car repair loans.
Average Cost of Common Car Repairs
Car repair costs aren't normally as high as emergency needs for healthcare and other costs but that doesn’t mean they can’t wreck your finances. Two-in-Three families report they don’t have enough saved to cover a $500 emergency expense.
That means the average cost of car repair of $728.47 is more than enough to force you into getting a loan.
Needing one loan to fix your car isn’t the end of the world but what happens when you’re still paying off that loan and something else happens to drain your bank account?
Pretty soon, you’re up over your ears in emergency loans and can’t make the payments. It’s a short path to bankruptcy.
The solution is knowing what auto loans are going to give you the best shot at getting out of debt faster, which offer the best rates and how to manage all these questions so you don’t get caught in that debt trap.
We’ll first cover some of the ways to pay for emergency car repairs before talking about the credit score you need for an auto repair loan and one of the first questions you should ask.
How to Pay for Emergency Car Repairs
Let’s do a quick comparison of the ways people pay for car repairs, some of the loan types available and other ways to find the money. I’ve listed these in order of best to worst but that’s really a judgement call so don’t feel like you have to use them exactly in this order.
I’ve provided links to resources I’ve used to check rates available and help decide which is the best for you.
Personal Loans are my go-to loans for any emergency spending needs. I’ve used these four times in the past, first for debt consolidation and then for other reasons like home improvement. The personal loan site you use is going to depend on your credit score because some lend only to good credit borrowers while others will lend to anyone.
The reason I like personal loans for car repair or other emergencies is the flexibility and rates. You can get a loan online for any need and you don’t have to put up your house or car as collateral. These loans don’t have a pre-payment penalty, so you can pay them off quickly to save on interest and get out from the debt.
The disadvantage of a personal loan is that rates are a little higher for borrowers with bad credit though they’re still lower than credit cards and payday loans. You’ll also usually need a job and stable income to qualify.
Refinancing your car might be an option if it only needs minor repairs but only if you have a few grand in equity. Rates on a refinance are lower than personal loans but a lot of people won’t be able to use this one because the value of their car or the cost of repairs.
I have to warn you here, there’s more than one type of refinancing and only one I recommend. Refinancing your car through a factory-approved dealer or authorized seller will get you honest rates you can afford.
Refinancing your car through one of those buy-here, pay-here scammers is just as bad as payday loans. This might be the only refinancing option available to some, but you’ll be paying rates as high as 36% or more. You’ll be limited on how much you can borrow and will probably be forced to repair the car at the dealer’s over-priced mechanic.
If you can get a car refinance loan for under 10% then go for it, otherwise you might want to consider one of the other options.
Friends and Family can be a great option for those small repairs, especially if you’ve always been good about paying back loans in the past. A lot of people hesitate to ask for money from family but it’s a legit way to cover those emergency needs.
We’re here to help each other out. That doesn’t mean handouts and supporting deadbeats, but it does mean friends and family won’t hesitate to give you a hand when you need it.
The obvious advantage here is that the money usually comes with no interest charged and a flexible repayment plan (if there’s a formal plan at all). The downside is that it’s easy to ruin relationships if you can’t pay back the money.
If you’re borrowing over $500 then you might consider paying some kind of interest or at least taking the other family out to dinner.
Credit Cards are a good way to pay the smaller car repairs though it’s not as easy a decision as you might think.
Charging a few hundred to fix your car still means you can pay your balance at the end of the month. That’s an interest-free loan and you might even get rewards points from the purchase.
Charging more than a few hundred might mean you carry a balance and pay rates as high as 24% for as long as you carry the debt. The balance can add up and you’ll hurt your credit score which will make it harder to get any other loans.
Compare your credit card interest rate against rates on personal loans to see which would be the cheaper option. Credit cards are great for emergency money that can be paid back within a month but not always the best option for longer-term loans.
Crowdfunding is an option most don’t think about but can be another interest-free option to getting the money you need.
Here we would be talking about social crowdfunding through sites like GoFundMe instead of rewards crowdfunding through Kickstarter. Rewards crowdfunding requires you to give out some kind of gift to supporters while social crowdfunding is more like a donation to your money needs.
It turns out these are mostly loans from friends and family because you’ll have a tough time getting any money from the ‘crowd’. I’ve consulted in crowdfunding and managed campaigns since 2014 on another blog and the vast majority of support is from people you already know.
Another downside is that campaigns usually take between 30 to 45 days to complete and can be a part-time job to manage. That’s not really practical for someone that needs to get their car fixed quickly to get to work.
Check out these examples of emergency fundraising like car repair on GoFundMe
Payday Loans and Cash Advance are ‘last and least’ in our list of car repair loan options. In fact, I really didn’t want to include these because they are terrible ideas and will bankrupt you in a heartbeat, but I felt like I had to include them to be fair.
Cash advances can seem like a quick and easy option for emergency car repairs but it’s a black hole of debt. You’re limited on how much you can borrow which means you don’t really get out of debt but just get a quick fix to hold you over for a couple of weeks.
As soon as you need money again, you’re right back in the same problem and the same store borrowing against your check.
Those fees don’t seem like much with each time you borrow money, but they add up. Borrowing that $700 for the average car repair and being stuck in a cycle of borrowing it each month will mean $105 in fees every month. Comparing it with other auto repair loan options and you see just how expensive it can be.
Credit Score for an Auto Loan
Getting any kind of loan can depend on your credit score not just in getting approved but in getting a rate you can afford.
What use is a loan to get your finances back on track if the interest rate pushes you deeper into trouble?
So it’s not so much what credit score do you need to get a car loan but what interest rates are available to your FICO and if it’s a good option.
I dug into loan data on Lending Club and Prosper, the two largest personal loan sites, to find the average interest rate for different credit scores. There are a lot of other factors that go into your loan rate, but these are good averages for what you can expect.
A good credit score will not only mean a lower rate but also that you’ll get approved on more loan sites. Some sites like SoFi have higher credit score requirements which can make it more difficult to get approved but you’ll get lower rates.
Since your credit score is unique, I usually recommend applying on a couple of different sites for emergency loans. This will keep your options open and make sure you get the best rate available. The sites do a soft-pull of your credit so it doesn’t affect your score until you pick a loan.
Should you Fix Your Car when it Breaks Down?
The first question you should be asking before applying for a car repair loan is, “Is it even worth it to fix my car?”
Don’t forget that just about any of the loan options above are going to have costs. Whether it’s interest on a loan, time spent trying to crowdfund or just having to be in debt to family, there are costs to all loans.
What you need to decide is if it’s worth it or is there a better option. That means looking at the value of your car and the costs of the loan.
- How much is the car worth versus how much it will cost to repair?
- Is the car so old that something else will probably break within a year?
- What’s the rate on a loan to fix your car and how much is the loan plus interest?
- Can you save up the money by using public transportation for a month or two and pay cash to fix your car?
- Do you even need a car? REALLY?
If your car is more than ten years old, it might be time to trade it in for something that isn’t going to break as often. Getting a newer car will save on gas and insurance as well.
You might even try going without a car for a month to see if you really miss it. That’s going to save you enough in gas, insurance and other costs that you might be able to pay cash to fix your car…easily the best option!
Car Repair Loan Comparison
I’ve tried to summarize the car repair loan options in the comparison table below. It’s not a full list of the pros & cons of each but might make it easier to see them next to each other. The cost of fixing your car can be a bigger decision than most people know and can set you on a bad financial path. Understand your options and how to use each.
|Type of Car Repair Option||Resources||Advantages||Costs|
|Personal Loans||PersonalLoans.com and NetCredit||Borrow as much as you need and no pre-payment penalty.||Higher rates for bad credit borrowers but still lower than other options.|
|Refinancing||SoFi||Lower rates for good credit borrowers with equity in car||Must have equity in your car and low repair costs|
|Crowdfunding||GoFundMe||No interest on money||Can take 20+ hours a week to manage and no guarantee of money|
|Friends & Family||No interest on money||Only borrow what you can absolutely repay|
|Payday Loans||???||Rates as high as 500% and limited amount|
Car repair loans don’t have to put you on the path to financial ruin. Whether you choose a personal loan to fix your car or one of the other options, understanding the pros & cons of each will help you make a better decision and know what you can expect.