Your car just broke down. Usually, you'd chalk this up to a bad day — putting our vehicles through the trials and tribulations of Canadian is par for the course, right?

Unfortunately, if you rely on your vehicle to do business, get your kids to school, or simply get to work, expensive car repairs could be too much to handle on such short notice.

Luckily, financing your auto repair costs can help you get back on the road without burning a hole in your wallet. Here’s what you need to know to get started.

We'll cover:

• How car repair loans work
• Application processes, eligibility, and requirements for an auto repair loan
• What auto repair loans cover
• Benefits of an auto repair loan
• How much you can borrow with a car repair loan
• Interest rates for automotive repair financing
• Personal loans vs. credit cards to finance car repairs
• Tips to manage vehicle repair loans
• Alternatives to auto repair financing

By the way — do you own your home? Lotly can work with you to get a secured loan (which has far more favourable interest rates) so you can pay your mechanic’s bill worry-free. We work with 50+ lenders to find you the best deal — get a free consultation to see what we can do for you today.

How do car repair loans work?

Car repair loans are a type of personal loan that can help cover the costs associated with repairing your vehicle.

They work like a traditional loan, where you borrow a certain amount of money and pay it back over time with interest. They can be a lifesaver for those who don't have the liquid cash readily available to cover such expenses.

An auto repair shop may offer:

• In-house financing: Some auto repair shops finance their services. Interest rates and terms may vary depending on the shop.
• Third-party financing: Some shops partner with a third-party lender to offer financing options to their customers. These loans often have better interest rates and terms than in-house financing.

Once approved, the repair shop gets full payment while you pay the lender. This allows you to get your car fixed and spread out the cost over time.

What are the steps for getting a car repair loan?

A car repair loan works similarly to other types of personal loans. You apply for the loan, get approved, and receive funds that you can use towards your car repairs. The process typically looks like this:

1. Find a lender: Start by researching lenders who offer car repair loans. Look for ones that have favorable interest rates and repayment terms. (If you think this sounds like a lot of work — you're not alone. That's why Lotly works with over 50+ across Canada to find the best rates on your behalf.)
2. Fill out an application: Once you’ve chosen a lender, you’ll need to fill out an application. This will require personal information and details about your car repair needs.
3. Get approved: The lender will review your application and determine if you meet their eligibility criteria. If you are approved, they will let you know the loan amount and interest rate.
4. Receive funds: Once you agree to the loan terms, the lender will transfer the funds to your bank account.
5. Use funds for repairs: With the money in hand, you can use it for your car repairs as needed.
6. Repay loan: You will need to make regular payments according to the terms of your loan agreement until the balance is paid off.

Some important things to keep in mind when taking out a car repair loan include:

• Interest rates and fees: Like any other type of loan, you will be charged interest on the borrowed amount. Compare rates from different lenders to get the best deal.
• Repayment terms: The length of time you have to repay the loan can vary between lenders. Consider your budget and choose a repayment term that works for you.
• Loan limits: Lenders may limit their lending for car repairs. Check if the loan amount is enough to cover all of your repair needs.
• Eligibility criteria: Each lender will have their own set of eligibility requirements. This could include factors such as credit score, income, and the age or mileage of your car. Make sure you meet these requirements before applying.
• Credit impact: Taking out a loan will affect your credit score. Make sure to make timely payments to avoid any adverse effects.

What are the requirements for a car repair loan?

The requirements for a car repair loan may vary depending on the lender, but here are some common ones:

• A good credit score: Most lenders prefer borrowers with a good credit score as it shows that you are responsible with credit and have a history of making timely payments. However, options are also available for those with bad credit or no credit history.
• Proof of income: Lenders want to ensure you have the means to repay the loan, so they may require proof of income, such as pay stubs or bank statements.
• Personal identification: You will likely need to provide a valid form of ID, such as a driver's license or passport.

What do auto repair loans cover?

Since you're not limited by what your auto insurance covers, auto repair loans can cover a broader range of car repairs, including but not limited to:

• Engine repairs
• Transmission repairs
• Brake replacements
• Suspension and steering repairs
• Electrical system repairs
• Cooling system repairs
• Exhaust system repairs

While these are repair-related expenses, a car loan is — in essence — an installment loan you're simply using for your car. There are several other ways you can use the money to improve and maintain the health of your vehicle.

Cosmetic enhancements:

• Paint jobs
• Detailing services
• Upholstery repairs and replacements

Accessories:

• Upgrading to a new sound system or GPS navigation system
• Adding a roof rack or trailer hitch
• Installing new wheels or tires
• Purchasing and installing a backup camera or blind spot detection system

Routine maintenance:

• Oil changes
• Tire rotations
• Wheel alignments
• Tune-ups

These are just some examples of what an auto repair loan can cover, but it ultimately depends on the lender's terms and conditions. Before taking out the loan, it's essential to carefully read through the loan agreement and understand exactly what repairs and expenses are covered.

The benefits of getting a car repair loan

• Quick access to cash: Loans like this can be processed quickly, so you can get the money you need on time. This is especially helpful when dealing with emergency car repair loans that cannot wait.
• Flexible repayment terms: Most lenders offer flexible repayment options for car repair loans, allowing you to choose the best payment plan for your financial situation.
• Lower interest rates than credit cards: Compared to using a credit card or other forms of borrowing, car repair loans often come with lower interest rates, making them a more affordable option.
• Preserve your savings: Instead of draining your savings to cover unexpected car repairs, a loan allows you to keep those funds for emergencies or other essential expenses.
• No collateral required: Unlike car title loans, which require using your vehicle as collateral, some car repair loans do not have this requirement. This means you won't risk losing your vehicle if you're unable to make payments on the loan. However, if you’re using a secured loan, this doesn’t apply — we’ll discuss this soon.

How much can you borrow?

The amount you can borrow for a car repair loan will vary depending on the lender and your individual financial situation. 

Some lenders offer loans up to $100,000, while others may have lower limits. When choosing a loan amount, it's important to carefully consider how much you need and can realistically afford to repay.

Interest rates for auto repair loans

Interest rates for car repair loans can also vary but are typically lower than those for credit cards or other forms of borrowing. The specific interest rate you receive will depend on factors such as:

• Your credit score
• income
• The amount you borrow

It's crucial to compare rates from different lenders to ensure you're getting the best deal possible.

Eligibility requirements for car repair financing

While eligibility requirements may vary among lenders, there are some common factors that they will typically consider when reviewing your application for a car repair loan. These may include:

• Credit score: A higher credit score can increase your chances of being approved and receiving a lower interest rate.
• Income and employment status: Lenders want to see that you have a steady source of income to ensure that you can make loan payments.
• Debt-to-income ratio: This is the percentage of your monthly income that goes towards paying off debt. Lenders typically prefer a lower debt-to-income ratio.
• Vehicle age and condition: Some lenders may have restrictions on the age or mileage of the vehicle to qualify for a repair loan.
• Collateral and down payment: Some lenders may require collateral, such as a car title or a down payment to secure the loan.

Personal loans vs. credit cards for auto repairs: pros and cons

Personal car repair loans:

Pros:

• Fixed interest rates and predictable monthly payments
• No collateral required
• Potentially higher borrowing limits compared to credit cards
• May have more flexible repayment options

Cons:

• Requires a good credit score for the best rates
• May take longer to get approved and receive funds compared to credit cards

Credit cards:

Pros:

• Quick approval process
• Can potentially earn rewards or cash back on repairs if using a rewards card
• No need to apply for a separate loan

Cons:

• Typically have variable interest rates, making it harder to predict monthly payments
• High interest rates compared to personal loans
• May not offer high enough credit limit for larger repair costs

Ultimately, your choice between a personal loan and a credit card for auto repairs will depend on your individual financial situation and needs. Carefully consider the pros and cons of each option before making a decision. Additionally, seeking advice from a financial advisor can help you determine the best course of action for your specific situation.

Tips for managing auto repair expenses

Whether you choose to use a personal loan or credit card for your car repairs, it's vital you have a plan in place for managing these expenses. Here are some tips to keep in mind:

• Regularly maintain your vehicle: By keeping up with routine maintenance such as oil changes and tire rotations, you can potentially prevent larger and more expensive repairs in the future.
• Get multiple quotes: Don't settle for the first repair shop you go to. Shop around and get quotes from different mechanics to ensure you're getting the best deal.
• Consider DIY options: If you have some mechanical knowledge, consider tackling more minor repairs yourself. This can save you money on labor costs.
• Create a budget for car maintenance: Set aside a certain amount of money each month specifically for car maintenance and repairs, especially if your vehicle is crucial to your work. This will help mitigate any unexpected expenses that may arise.

Overall, managing auto repair expenses requires careful planning and budgeting. By considering all your options and being proactive with vehicle maintenance, you can better prepare for unexpected car repairs without breaking the bank.

How to qualify for auto repair loans

If you're considering taking out an auto repair loan, there are a few things you can do to increase your chances of qualifying:

• Check your credit score: Lenders will typically consider your credit score when determining whether or not to approve you for a loan. Make sure to check your credit score and address any issues before applying.
• Have a steady income: A stable source of income can improve your chances of getting approved for a loan. Lenders want to see that you have the means to repay the amount borrowed.
• Provide collateral: Some lenders may require collateral, such as the title of your car, to secure the loan. Having collateral may make it easier for you to qualify for a larger loan amount. If you're a homeowner, Lotly can help you get a stable, secured loan using the equity in your property.
• Consider a co-signer: If you have a family member or friend with a good credit history, they may be willing to co-sign the loan with you. This can improve your chances of getting approved and help you secure a lower interest rate.

It's important to note that each lender will have their own criteria for approving loans, so it's always best to check with them directly before applying. By improving your credit score and having a solid financial standing, you can increase your chances of qualifying for an auto repair loan when needed.

Alternatives to auto repair loans

Credit cards

If you cannot qualify for auto repair lending, another option to consider is using a credit card. While interest rates on credit cards may be higher than those of loans, they typically have a shorter repayment period, which can help save you money in the long run.

Savings or emergency funds

One of the best ways to avoid needing an auto repair loan is by having savings specifically designated for unexpected car expenses. By setting aside a portion of your monthly income, you can build up an emergency fund to cover any necessary car repairs without taking out a loan.

Negotiating with the mechanic

In some cases, it may be possible to negotiate with your mechanic for a payment plan or reduced cost for repairs. This is especially true if you have been a long-time customer or have developed a good relationship with them. Be open and honest about your financial situation and see if any options are available.

Lotly can help make your vehicle repairs easy

Let's quickly recap what we've covered:

• Automotive repair loans can be a helpful solution for unexpected car expenses.
• Consider using a credit card, personal loan, savings or emergency fund, negotiating with the mechanic, or payment plans instead of an auto repair loan.
• Carefully consider your financial situation and options before taking out a loan.

Remember: always make sure to compare your options and choose one that works best for your individual circumstances. Need some help covering all your bases? Lotly can help.

We'll use our network of over 50 lenders nationwide to find you personalized, secured loan options that fit your needs and budget. Next time your car needs a repair, book a free consultation to see what we can do for you. With Lotly's help, you can get back on the road without breaking the bank. 

FAQs

Are auto repair loans only for major car repairs?

No, you can also use an auto repair credit for smaller expenses such as routine maintenance or minor repairs. Remember, this is simply a personal loan to fix car damage (or other issues with your vehicle); you could theoretically use it for anything else.

Can I use a personal loan for any type of car repair?

Yes, you can use a personal loan for any necessary car repairs, regardless of the size or complexity. However, it's vital you carefully consider the interest rates and fees associated with the loan.

Can I negotiate with my mechanic for a reduced cost or payment plan?

Yes, in some cases, your mechanic may be open to negotiating depending on your relationship with them and the specific repair needed. It never hurts to ask and explore all options before taking out a loan. However, auto shops that finance may work with third-party car repair loan companies, and the terms may be out of their hands.

What happens if I can't make my scheduled payments on an auto repair loan?

Communicate with your lender if you need help to make payments as soon as possible. They can work out a different payment plan or offer temporary financial assistance. However, missing payments can result in late fees and damage your credit score.

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