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Auto Repairs Loans - What Are They?

Updated on December 28, 2022


A car can be costly; unforeseen expenses can knock your budget off track. While car insurance typically covers costs related to collisions. You are usually responsible for repairs resulting from regular wear and tear.

Fortunately, auto repair loans are convenient for individuals facing unexpected car repair expenses. Whether it's a breakdown, maintenance, or paying off a car loan, these loans provide the necessary funds to cover repairs. Here's a look at what qualifies for an auto repair loan, the typical requirements, and some alternatives you may want to consider.

What Is An Auto Repair Loan?

An auto repair loan is a type of financing specifically designed to cover the cost of vehicle repairs. When unexpected car repairs arise, such as engine problems, transmission issues, or collision damage, the expenses can often be significant and challenging to cover out-of-pocket. An auto repair loan can help individuals finance these repairs and spread the cost over a set period, making it more manageable to pay off.

Why Are Auto Repair Loans Useful?

Auto repair loans are helpful for several reasons:

Repair after a Breakdown

Auto repair loans provide a valuable solution when your vehicle experiences a breakdown or mechanical failure. They offer financial assistance to repair or replace damaged parts, allowing you to quickly get your car back on the road.

Preventative Maintenance

You can use these loans for preventative maintenance purposes. Regular maintenance, such as oil changes, brake inspections, or tire rotations, can help prevent major breakdowns in the future. An auto repair loan can help cover the costs of maintaining your vehicle and ensuring that your car remains in good working condition.

Pay off a Car Loan

In some cases, you may already have an existing car loan. You can use auto repair loans to pay off the outstanding balance on the existing loan, consolidating the debt and potentially reducing the overall interest rate. That can provide financial relief and simplify repayment by combining car loans and repair expenses into a single loan.

By addressing breakdowns, saving money on car maintenance, and offering an option to pay off an auto loan, auto repair loans are a practical and versatile tool for managing and financing vehicle repairs.

How Does It Work?

If you have considered the benefits of obtaining an auto repair loan and are interested in getting one, here is a guide to get started:

Check Your Eligibility

Visit an auto repair shop and obtain an estimate for your car repair assistance. That will help you estimate the amount you need to borrow. You can prequalify with multiple lenders quickly online. This process usually involves a soft credit check that doesn't impact your credit score.

Review Your Offers

Assess the different loan offers you receive, considering factors such as interest rates, loan fees, repayment periods, and monthly payments. Take your time to choose the offer with the most favorable terms for your needs. Be prepared with the documents, such as tax returns, pay stubs, or proof of employment, as requested by the lenders.

Get Your Money

You can complete the loan application form and submit the required documents. Once your loan is approved, you will finalize the process by signing the loan agreement. You then get the funds by the mode and time agreed by you and the lender.

Auto repair loans for bad credit.

How to Choose an Auto Repair Loan?

Comparing a few variables from different lenders is essential to choosing an auto repair loan. Consider your budget and select the loan offer that best suits your financial needs and offers the most favorable terms for your situation. Here are the top five factors to consider while shopping for an auto repair loan:

Available Principal

Ensure that you borrow the exact amount needed for the repair, considering the cost as a determining factor. Compare lenders who can provide the desired amount and then evaluate rates and loan terms.


The APR encompasses the total loan cost, interest rate, and fees. Some lenders offer fee-free loans to eligible borrowers, while others include origination fees in the APR.

Fees and Penalties

Additional fees and penalties, not reflected in the APR, can catch you off guard. Late payment fees and prepayment penalties are examples. Carefully consider these factors when selecting a lender.

Repayment Term

Lenders provide various repayment terms, ranging from short (e.g., two weeks) to long (e.g., five years). More extended periods yield lower monthly payments but result in higher overall interest. Choose a repayment term that aligns with your comfort level.

Monthly Payment

The affordability of the monthly payment is crucial. Evaluate your budget and adjust expenses to accommodate the repayment. If concerns arise about meeting monthly obligations, opt for a longer repayment term loan.

Who Should Consider an Auto Repair Loan?

Although auto repair loans offer convenience, they may only suit some. These loans are particularly beneficial for small business owners dealing with car rentals and vehicles like limousines or trucks. Before applying for such loans, business owners should assess factors like credit history, bankruptcy filings, and the availability of alternative payment methods like credit cards or savings.

If you still need a credit card or don't have sufficient funds or savings for auto repairs, an auto repair loan could be a viable choice. It provides readily available cash to cover vehicle damage expenses. When you find yourself in a situation where immediate funds are required for urgent repairs or responding to a damaged vehicle emergency without access to other credit options, auto repair loans can be a suitable solution.

What Are My Options for Auto Repair Financing?

Regarding auto repair financing, you have several options depending on your creditworthiness. Some of them are as follows:

Personal Loans

Personal loans are versatile, and you can use them for various purposes, including covering auto repair costs. When your vehicle is collateral for the loan, it's an auto loan. However, most personal loans are unsecured and do not require collateral. While individuals with excellent credit receive the lowest interest rates, obtaining a personal loan with fair or no credit is still possible.

Auto Equity loan

Auto equity loans involve using your vehicle as collateral to secure a loan. The critical factor that decides your loan amount is the equity you have built in your vehicle, which is the difference between its market value and any outstanding loan balance. The loan's repayment terms and interest rates vary depending on the lender.

Payday Loans

These are short-term, small-dollar loans that do not require a credit check. However, the short repayment timeline could be less practical for many people, leading to loan rollovers, increasing interest, and a dangerous cycle of debt. Payday loans carry high average annual percentage rates (APRs), reaching around 400%. An installment loan can be a much more favorable alternative for those with bad credit or no credit history.

Title Loans

Title loans use your vehicle's title as collateral. The loan amount is a percentage of the car's appraised value. If approved, you must surrender the vehicle title to the lender. While car title loans are accessible even with poor credit, they often come with high interest rates and the risk of vehicle repossession for default.

Auto repair loans.

Pros and Cons

When determining the suitability of an auto repair loan, it is crucial to weigh the pros and cons associated with this financing alternative.


Financial Assistance: Auto repair loans provide immediate financial assistance when covering unexpected car repair costs. That can help you address necessary repairs promptly, ensuring your vehicle remains safe and operational.

Flexibility: Auto repair loans typically offer flexible repayment options. You can choose a repayment plan that suits your budget and financial capabilities, whether fixed monthly payments or a more customized schedule.

Accessible: These loans are relatively accessible compared to other forms of financing. They may have less stringent eligibility criteria than traditional loans, making them available to a broader range of borrowers, including those with less-than-perfect credit.

Preserve Cash Flow: Rather than paying for repairs upfront, an auto repair loan allows you to spread out the cost over time. That helps preserve your cash flow, allowing you to manage your other financial obligations and unexpected expenses more effectively.


Interest and Fees: Like any loan, auto repair loans have variable or fixed interest fees depending on the lender. If not managed carefully, they can increase the overall cost of the repair.

Debt Accumulation: Taking on additional debt through an auto repair loan adds to your overall financial obligations. Suppose you already have existing loans or debt. In that case, it's essential to consider the impact of adding another loan to your financial portfolio.

Potential for Overborrowing: The accessibility of auto repair loans can sometimes lead to overborrowing. It's essential to carefully assess the amount you truly need for repairs and avoid borrowing more than necessary to prevent unnecessary financial strain in the future.

What Can Auto Repair Loans Cover?

Auto repair loans cover various expenses associated with car repairs. These may include essential maintenance such as replacing tires, repairing or replacing the transmission, or fixing a damaged windshield.

Borrowing only the amount needed to minimize future costs is always advisable. While auto repair loans can be used for upgrades like customized rims or a new sound system, it is essential to remember that you have to repay the borrowed amount along with interest.

Where Can You Get an Auto Repair Loan?

You can obtain auto repair loans from various sources, including banks, credit unions, online lenders, and some auto repair shops. The loan amount usually varies depending on the lender and the borrower's creditworthiness. Some lenders may require collateral, such as the vehicle itself. In contrast, others may offer unsecured loans based on the borrower's credit history and income.

Loan for auto repair.

How to Apply for an Auto Repair Loan?

When you're prepared to apply, gathering all the necessary documentation is essential. To increase your chances of fast approval, keep your application materials well-organized and ensure that you address all the requirements and inquiries of your chosen lender.

Here are the key factors that lenders commonly consider when evaluating borrowers:

Stable income: Lenders typically seek borrowers with a consistent income source to ensure timely loan repayments. This may require providing balance sheets, tax returns, or profit and loss statements as part of your application.

Business tenure: The duration of your business operation is another aspect lenders may consider. Generally, lenders prefer to see a track record of several months or years in business before approving a loan.

Insurance: Some lenders may require proof of automobile insurance, so you must inform them if you have it.

Title documentation: Ensure you have all the necessary paperwork to verify vehicle ownership.

Credit history: While specific auto repair financing options may not require a credit check, if you're seeking an unsecured loan, some lenders may assess your personal or business credit score to gauge your borrowing risk. Typically, a higher credit score enhances your chances of loan approval.

Once you've gathered all the required documents, submit your loan application. Many lenders offer the convenience of online applications.

Can I Get an Auto Repair Loan with Bad Credit?

Indeed, obtaining an auto repair loan without a credit history is feasible. Nevertheless, it's important to note that many of these alternatives come with high expenses. This emphasizes the significance of maintaining a well-funded emergency fund to cover unforeseen car repairs with cash.

What Happens if I Can't Repay My Auto Repair Loan?

Missing a payment on a secured loan like a title loan can result in the lender repossessing and potentially selling your car. With payday loans, the lender may automatically withdraw the payment from your checking account, leading to overdraft fees if sufficient funds are unavailable.

Late payments on a personal loan for auto repairs or credit cards typically incur late payment fees and negatively impact your credit score. Since payment history heavily influences credit reports, even one missed payment can have adverse effects.

If you anticipate difficulty making an upcoming payment, explore ways to alleviate the strain on your budget. That may include applying for government assistance programs, securing additional sources of income, or reducing nonessential expenses such as unnecessary subscriptions.

You can inquire about changing the payment date for credit card payments to gain some breathing room. With installment loans, consider discussing options for refinancing. If you have a high debt-to-income ratio, seeking assistance from a nonprofit credit counseling agency can be beneficial. Finally, aim to establish an emergency fund once your finances stabilize, enabling you to handle unexpected auto repairs in the future.

Alternatives To Car Repair Loans

If an auto repair loan doesn't seem right for you, here are some alternative options that can help you cover unexpected repair costs:

Home Equity Loans And HELOCs

Using a home equity loan allows you to utilize the equity in your home by receiving a lump sum that can be used for various purposes. However, the processing time for a home equity loan can be lengthy, making it less suitable for immediate auto repairs. Additionally, it's crucial to consider that failure to make payments on a home equity loan may result in the loss of your home. Another option is a Home Equity Line of Credit (HELOC), which offers a revolving credit line that can be accessed and repaid repeatedly, similar to a credit card. It's important to note that your home may be at risk if you cannot meet the payment obligations.

Mechanic Payment Plan

Specific mechanics and auto repair establishments collaborate with lenders to provide financing alternatives to their clientele. These options may include payment plans or specialized credit cards. Branded credit cards often initially feature promotional offers, discounts, and a limited or zero-interest period. It is crucial to note that the interest rate typically increases once the introductory period concludes. Therefore, it is advisable to repay the loan before the conclusion of the initial period.

Credit Card

By utilizing a new credit card to finance the necessary repairs, you can take advantage of an introductory period with a 0% interest APR from 6 to 21 months. Similar to a mechanic payment plan, you have the opportunity to save money by fully repaying the owed amount within this timeframe. However, failing to do so may result in the activation of a high interest rate, potentially leading to more debt than anticipated. It is important to note that certain credit cards may also entail annual fees for their usage.

Savings Account

You may need to rely on your emergency fund to finance your auto repairs when alternative options are unavailable. While this may not align with the original purpose of your savings, it can be the most viable solution when no other means of payment are accessible. If your bank account falls short of covering the repair cost, utilizing cash to contribute towards the expenses can help reduce the amount you'll need to borrow.


Auto repair loans are a practical financial solution for individuals facing unexpected car repair expenses. These loans provide quick access to funds, allowing vehicle owners to address repair needs promptly. With flexible repayment options and no collateral required in some cases, auto repair loans offer a convenient way to cover repair costs while preserving savings for other financial needs.

It's worth noting that an auto repair loan is distinct from a car loan or auto financing used to purchase a vehicle. An auto repair loan is specifically intended to cover the cost of repairs and maintenance rather than acquiring a new or used car.

As with any financial decision, evaluating your circumstances, comparing loan offers, and considering the potential benefits and drawbacks before taking out an auto repair loan is crucial.

Hair Free since 1997

Noel Ballon

Noel Ballon is a skilled personal finance writer passionate about helping people to succeed financially.

As a guest writer for CASH1, Noel has shared his knowledge on a variety of financial issues, including budgeting, saving, investing, and retirement planning

Noel has a background in economics and finance with over five years of experience writing in the financial sector.

He works to simplify complicated financial ideas so that people from every area of society may understand them.

When Noel isn't writing, he likes keeping current on the latest financial sector changes and looking for fresh approaches to assisting people in choosing wise financial decisions.