Alternatives to car repair loans and how to find the best rates even on bad credit.
According to AAA, the average American pays $1,120 a year in car repairs and maintenance…and much of that comes at the worst possible time.
Your car never breaks down after getting your tax refund or when that occasional third-payday of the month hits your account. The shakes and shimmies never appear when you have the money.
Instead, they come at the worst possible moment. You need brake work the same month the annual insurance payment is due. Your oxygen sensor craps out the same month your kid breaks his arm playing ball, costing a grand deductible.
Considering six-in-ten families report not being able to cover a $400 emergency expense from savings, the worst of times happens a lot.
So what do you do when your way of getting around…isn't going to get you around without that $600 ignition replacement?
Can You Finance Car Repairs?
There's a big, giant gap in the market where you should find good car repair loans. You can apply for a home mortgage at any bank. Dealers and car lots jump at the chance to finance new or used cars.
But few places will give you a loan to fix your car.
Most people still owe on the car, so you can't secure a repair loan on the car title. If the car's broken, how much is it really worth to the lender anyway?
The average cost to repair a car, among all the things that can and will go wrong when you're least prepared is $397.87 and happens about twice a year according to AAA. Even if you have good credit, most banks and lenders won't make a loan for anything less than $2,000 or more.
Then there's the problem for bad credit borrowers.
Enter car repair loans, a special set of the personal loans market designed to get you back behind the wheel. These loans are usually shorter-term from six months to a year and usually less than $5,000 depending on the repair.
What Credit Score Do I Need for a Car Repair Loan?
If you can find a bank to extend money on car repairs, most will require a credit score of 720 FICO or higher. That's well above the prime lending cutoff and only about one-in-three Americans would qualify.
Online lenders have different credit score cutoffs for loans. We'll review some of the biggest companies but sites like PersonalLoans.com and BadCreditLoans.com specialize in bad credit loans and can lend to borrowers with a score as low as 580 FICO (and sometimes lower even though their requirements say otherwise).
Other websites like SoFi offer lower rates but require higher credit scores. SoFi even offers a car refinancing program that can help with repair needs.
The difference in credit score needed comes from the type of lenders on each website.
- Peer-to-Peer websites match borrowers directly with investors to fund your loan. As long as an investor is willing to take the risk, they'll fund your loan at even the lowest FICO score.
- Private lenders have stricter requirements on the use of their money, usually coming from pension funds and investment companies. They can still approve bad credit loans but the cutoff is a little higher.
- Some online lenders are just a front for traditional banks to make more loans than possible out of the branch office. These loans still have the same credit requirements though and are almost impossible to get for a car repair.
Can I Get a Title Loan to Fix My Car?
Just 37% of Americans own the title to their car free-and-clear according to the Car Owner's Association. If you're one of these lucky one-in-three, a title loan to fix your car may be a possibility.
That still doesn't mean it's going to be easy or that it's your best option.
In my experience most title loan offers you'll get, especially on a car with repairs needed, are coming from shady used car dealers. The strategy here is to charge an interest rate so high on your loan that they keep the all the payments and reposes your car.
A Warning about Financing with Your Mechanic
When all doors have closed, when the banks won't lend to you and you can't get a title loan, the mechanics come out to prey on bad credit borrowers.
They offer to fix the car on credit, putting a lien on the car's title like a second-mortgage. To seal the deal, the interest rate even looks reasonable compared to other loan options.
But that's not where the mechanic is making their money.
Besides charging interest of 12% or more on your repair bill, mechanic financing usually includes several loan fees. Top it off with the fact that the mechanic knows you've got no other options and adds another 20% to the repair estimate.
Refinancing your car repairs with the mechanic are every bit as bad as the store brand credit cards that send you into a trap of spending too much and paying interest on every cent.
Best Websites to Get a Car Repair Loan on Bad Credit
I've used almost a dozen online lenders over the last decade. It started as a way of clawing my way out of debt and a train-wreck of a credit score in 2009. I've used online loans for debt consolidation, home improvement and several other reasons. Over the past several years, I've even taken out loans to test lenders for reviews on this site.
In that time, I've found five sites that I feel good about recommending and that never let me down when it comes to getting the money I need.
PersonalLoans.com is the most frequent site I hear from readers and the one I've used the most often. The lender has one of the easiest credit requirements and can lend to most credit scores. I used the site for debt consolidation and my wedding loan.
Rates on loans are higher than the ‘good credit' lenders but PersonalLoans offers the best customer service for bad credit borrowers. The reps know how to design a payment plan you can afford and will work with you to keep you on track.
BadCreditLoans is just what the name says, an online lender for borrowers that can't get approved anywhere else. The site has the lowest credit score requirement of the list at just 520 FICO. Top it off with the fact that there's no origination fee on your loan and this is one you definitely want to check.
SoFi offers the largest selection of loans I've ever seen from an online lender. From its beginning in student loan refinancing, it's grown into a banking and lending giant offering medical loans, mortgages and personal loans.
Rates on SoFi loans are also some of the lowest you'll find but it comes at a cost, a higher credit score requirement. SoFi doesn't publish its minimum FICO score for a loan but it's probably close to 700 for most borrowers.
Upstart is a newer lender and uses a unique credit-scoring model. The company takes into account a college degree or coursework to approve loans from borrowers with higher education.
That makes it the perfect lender for students or graduates though the credit score requirement is higher for those without a degree.
Lending Club is the largest peer-to-peer lender in the world and does business loans as well as personal loans. This is another one where a higher credit score requirement means lower rates but more loans denied.
Listing out the websites for car repair loans brings us to an important point with online lenders. Checking your rate on a loan does not hurt your credit score. In fact, just checking your rate doesn't even go on your credit report. It's like getting pre-approved for a credit card.
That means it's important to check your loan rate on at least a few websites. Even if you don't think you can get approved on some of the ‘good credit' sites, it doesn't hurt to check and you'll know which site is offering the lowest rate possible.
|Car Loan Website||Loan Fees||Credit Score Needed||Loan Rates||Notes|
|5%||580||9.95% to 36.0%||Best p2p loan site for bad credit borrowers. Lower credit score and three options including peer loans, bank loans and personal loans.|
|No Fees||520||Vary by State||No fees and lowest credit requirements for lenders|
|No Fee||Not available but higher than most, around 680 FICO||5.99% to 16.49% (fixed rate)|
5.74% to 14.6% (variable rate)
|Special discounts for variable rate loans. Offering $100 cash back on peer loans.|
|1% to 6%||620||6.25% to 30.0%||Best peer loans for graduates and no credit history.|
Alternatives to Car Repair Loans
I've used car repair loans and they're an easy way to get fast cash when you need it…but they can also be really expensive. On a $5,000 loan to fix the transmission, paid back over three years at an 18% rate, you'll pay more than $1,500 in interest.
Save yourself thousands by exploring some of these alternatives to car repair loans. Even if you can't get the full amount you need from family or one of the other alternatives, it will help lower your loan amount and the cost.
Asking family for a loan. OK, I know nobody likes this option but it's the best on your bank account. Everyone hits a rough patch and family is there to support you when it happens.
Getting a loan from family to repair your car doesn't mean they have to get the bum deal. Instead of paying 18% on a personal loan, why not pay 8% on a family loan. You'll save a lot of money and it's a big incentive to the lender.
That isn't a free ticket to abuse the generosity of friends and family. Write out a formal contract for the loan, underlining how much you'll pay back in principal and interest as well as everything you'd find on a regular loan agreement like late fees.
Getting a personal loan to finance your car repair. This is really what we've been talking about with car loans but with one very important twist. As long as you're taking money out to repair the car, you might as well take the opportunity to get out ahead of your bills and improve your credit.
You can borrow up to $36,000 on most personal loan sites, more than enough to repair the car and pay off the credit cards. That's going to free you up from juggling multiple bills a month and racking up late fees when you forget. It's also going to boost your credit score by improving your credit utilization ratio.
Negotiate with the mechanic to lower your bill or trade for services. This is one of my favorite alternatives because few people ever think about it. If you take your car to a private mechanic or a small shop, instead of the dealer or a chain store, I guarantee they'll negotiate with you on the price.
This is going to take two steps to save as much money as possible.
First, negotiate the price lower from where the mechanic initially quotes the work. Make sure you get a firm quote before they start and get a quote from other mechanics in the area. Use this information to shave from 5% to 15% off the price.
From there, you can start negotiating for trade. Can you provide baby-sitting or run some errands? There's always something to trade and you might just get the bill down to zero.
Public transportation and car pool. This isn't going to get you out of paying the car repair bill but it may give you time to save up the money. It's a nuisance but so is having to go in debt and pay a couple of hundred a month on that loan.
Consider each of these alternatives to financing your car repair. Even if you can't get the full amount, get as much as possible to lower the amount of loan you need. A car repair loan can't always be avoided but it can be minimized so it's not quite the burden.
Getting a car repair loan on bad credit doesn't have to push you into that cycle of debt. Interest rates will be higher but having the right information will help you manage the debt without the trouble. Avoid the loan sharks and other scams to get the emergency money you need fast!