Auto Repair Loans: How to Finance an Expensive Car Repair

» MORE: Best unsecured loans

What is an auto repair loan?

Auto repair loans are personal loans that are used to pay costly auto repair bills. Personal loan amounts are typically $1,000 to $50,000, though some lenders offer smaller or larger loans. Annual percentage rates, which represent the full cost of borrowing, are fixed and usually range from 6 to 36%.

Since you can use a personal loan for almost any expense, you can use one to pay an auto repair bill if you don’t have the money on hand. Most personal loans are unsecured and lenders qualify borrowers based on their credit, income and existing debts. Borrowers with good to excellent credit (scores of 690 or above) have the best chances of qualifying and getting a low APR.

You can get a personal loan for auto repairs from a bank, credit union or online lender. Online lenders often have the fastest funding times, with many able to offer same- or next-day funding.

» MORE: How long does it take to get a personal loan?

Average cost of auto repairs

Several factors affect the price you’ll pay for auto repairs, including the type of repair you need, your vehicle type and where you get the work done.

On average, consumers spend about $548 on car repairs, according to the automotive research company Kelley Blue Book. However, your specific repair could be significantly more expensive. Replacing an alternator or starter could cost over $800, or you might get a bill for over $1,000 if you need a new fuel pump or fuel injector.

A luxury imported vehicle likely requires parts that are more expensive than average. Labor may also cost more in a high-cost-of-living city than other locations.

» MORE: Auto repairs: Dealerships vs. independent mechanics

Pros and cons of auto repair loans

How to get an auto repair loan

Follow these steps to get a loan to cover auto repair costs.

1. Determine how much you’ll need to borrow. You’ll need a solid cost estimate to know what size loan to ask for. Get multiple quotes to find the best deal, but keep in mind that some mechanics charge a diagnostic fee to determine the scope of the work. Consider factors like the time it’ll take to complete the repairs, the reputation of the repair shop and the distance if you need to tow the vehicle to a shop.

2. Pre-qualify with multiple lenders. Once you know how much you need to borrow, pre-qualify for a personal loan to preview the rate, monthly payment amount and loan term. It is free and typically involves a soft credit pull, which doesn’t affect your credit score. Pre-qualify with multiple lenders and compare loan offers with other financing options to find the best deal.

3. Complete a formal loan application. Gather documents like your driver’s license, pay stubs and tax returns, because many lenders require proof of identification and income on a loan application. The lender will conduct a hard credit inquiry when you apply for a personal loan, causing a temporary dip in your credit score.

» MORE: How to apply for a personal loan

If you’re approved for the loan, the lender will likely disburse funds within a week, if not sooner. Your first loan payment will be due in about 30 days, and the monthly payment amount will be the same for the loan term.

Consider enrolling in automatic payments or setting calendar reminders to ensure you make payments on time. Missed payments can result in late fees, and most lenders report payments that are more than 30 days late to the credit bureaus.

» MORE: What happens if you default on a personal loan?

Alternative financing options

Emergency fund: If you have money in an emergency fund, consider using it to get your car fixed, especially if you need to use your vehicle and can’t wait to save up for a necessary repair.

Repair shop financing: The dealership or repair shop may offer in-house financing through a third-party lender. For example, Jiffy Lube and Midas both offer credit cards. These financing options may include a low- or no-interest introductory period, but be sure to check the regular interest rate and terms. If you can’t pay the repair off during the promotional period, you may be charged interest retroactively.

Buy now, pay later: Some repair shops and auto part stores partner with “buy now, pay later” companies, such as Affirm, Afterpay and Klarna, so customers can spread out expenses over several weeks or months. The popular pay-in-four plans, in which payments are spread across six weeks, usually don't charge interest.

Zero-interest credit card: Some credit cards have no-interest promotional periods — generally the first 15 or 21 months — for new account holders. Qualifying for a zero-interest credit card usually requires good or excellent credit. These cards generally don’t charge retroactive interest, so if you don’t pay the card off during the promotional period, you’ll begin paying the regular interest rate once it ends.

Family loan: Borrowing money from a loved one helps you avoid a formal application process and may be an interest-free financing option. Sign a loan agreement to keep both parties on the same page about how the family loan will be repaid.

Financial assistance from a local nonprofit: Some local charities and nonprofit organizations help people in need with bills they can’t afford. Assistance may be based on your household income. NerdWallet's database of local financial assistance programs highlights organizations in each state.

Avoid predatory car repair loans

Approach payday loans and title loans with caution, because while they often provide borrowers with fast, easy money, their high rates and short repayment periods make them difficult for many borrowers to repay.