A car repair loan is not the same as a car loan. With a car loan, you can purchase a car and pay it off over a period of time. A car repair loan can help you secure emergency funding specifically for car repairs.
There are several types of loans you can apply for, which will help you fund your car repairs. These include secured and unsecured personal loans, short-term loans and credit cards.
How much you can borrow will depend on the type of loan you apply for, and what the lender approves you for. Both secured and unsecured loans have higher borrowing amounts, while you can borrow up to $5,000 or $10,000 with a short-term loan. Keep in mind that the latter comes with high rates and fees and can work out to be very expensive.
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How much do car repairs cost?
Car repair expenses vary greatly based on the make and model of the vehicle, the repairs needed and where you choose to get it fixed.
Some common repairs include:
Smash repairs. Unless you're covered by comprehensive car insurance, the cost of repairing anything from relatively minor dings to major body damage can be surprisingly high. To give you an idea of the potential costs, back in 2012 the Insurance Australia Group (IAG) Research Centre compared repair costs for popular small cars involved in a simulated 10km/h collision. The Toyota Yaris was the most expensive to repair, with the combined cost of repairing the front and rear coming in at $13,440, or more than 70% of its original purchase price. Even the cheapest car on the list, the Holden Barina, still cost $2,574 to repair.
Cylinder problems. A broken cylinder is a common mechanical issue for older cars that may have not received the attention they need. Regular servicing is the best way to prevent this occurring, but if you have a broken cylinder, the repair bill could be $8,000 or more.
Engine. You don't need to be a rocket scientist to know that a mechanically sound engine is crucial. Repair costs vary greatly depending on the issue, but if you suffer a blown engine and it needs to be replaced, the bill could be up to $4,000.
Transmission. If something goes wrong with your vehicle's transmission, it can lead to significant mechanical problems. It can also hurt your wallet, with repairs generally costing between $1,000 and $2,000 and a full replacement as much as $5,000.
Head gasket. The head gasket seals off the cylinder head from the engine block and prevents oil and coolant leaks. A blown head gasket can cause a whole lot of damage to your car, setting you back by around $2,000 or so.
These are just a few mechanical and body issues that could affect your car. The older your vehicle is, the greater the chance of repairs. Add in extra costs like roadside assistance, towing expenses and the cost of ordering spare parts from interstate or overseas, and you could be looking at a sizable car repair bill you may have trouble affording.
What loans for car repairs are available?
If you're facing an expensive car repair bill, there are several finance options available. These include:
A credit card is a revolving line of credit and can be worth considering if the card issuer offers an introductory interest-free period. Also consider whether you can pay off the repair bill within the promotional timeframe. The amount available varies depending on your card limit.
Simple and convenient
0% interest if you pay off your debt before the promotional period ends
Plenty of options to choose from
Use the funds however you like
A high interest rate applies if you don't pay off your debt within the promotional period.
Paying for repairs with a credit card may attract a surcharge.
You may not have enough balance on your card to use for other purchases.
This will depend on the type of loan you apply for. Generally, secured loans take longer to process, as you need to show proof of asset ownership. Unsecured loans have a fast, straightforward application process. Depending on the lender, you may be able to get your funds either within a day or a few business days at most.
Short-term loans have a quick turnaround time, and some lenders offer funding within an hour of applying. Keep in mind that this convenience comes at a high cost, and you should only consider a short-term loan if you have no other option.
The application process for credit cards is also relatively quick, but you'll have to account for postage time. You should also be mindful of surcharges and whether you can settle the bill during the promotional period.
How can I compare car repair loans?
Here's what you need to consider when you're comparing car repair loans:
How much does the loan cost? What does the loan cost when you add in interest charges and fees? For personal loans, it's important to consider both the interest rate and comparison rate. The comparison rate includes all the rates and fees, in addition to interest charges. Fees can include establishment and ongoing fees.
Does it fit my budget? After you calculate the cost of the loan, you need to ask yourself if you can afford it. How does it fit in with your current budget? Will making repayments leave you out of pocket? You should only apply for a loan if it fits comfortably within your budget.
What is the loan term? Loan terms are important to consider for 2 reasons. It tells you how long you have to repay the loan. It can also determine your monthly repayments. With short terms, your monthly repayments may be high. But with long terms, you'll be adding to the cost of your loan as you'll be paying interest and fees for those extra months. You need to consider what works best for your budget and if you can repay the loan in the time given to you. If you fail to make your repayments, there may be high fines and even legal repercussions. If you've opted for a secured loan, the lender can also repossess your asset.
Is the loan amount sufficient for my purposes? If you borrow too much, you'll be paying interest and fees on money you don't need. If you borrow too little, you won't be able to pay for what you need and may have to take out another loan.
How fast can I get the loan? If you need cash fast, you should take into account how long the lender will take to service the loan. Turnaround times differ between lenders, so make sure you account for this in your comparison.
Is the loan flexible? This is an important consideration as it could affect your ability to manage the loan. Does the loan allow you to make weekly, fortnightly or monthly repayments? Does the payment schedule line up with your payment frequency or will you be left out of pocket?
Are there extra loan features? Can you make extra repayments or repay the loan early? Are there penalties or fees for any extra features?
Is there anything I should avoid?
Applying for the first loan you see. You won't know if you're getting the best deal if you apply for the first loan you find. Compare your options first and make a shortlist based on cost, terms and eligibility.
High rates and fees. You will be charged interest and you will be charged fees. Look out for both interest rates and comparison rates. The latter will tell you the true cost of the loan and includes both interest and additional fees. Calculate how much you have to pay every month and how much the loan will cost you over its lifetime. Sometimes your monthly payments may be low, but with longer terms you'll be paying more interest and fees. This can cost you more in the long run.
Unlicensed lenders. Some loans can be too good to be true, while some lenders can be predatory. It's best to check if the lender is legitimate and what its history is. You should check the lender's website and make sure it's a reputable company and that it's registered with ASIC. The lender should also be easy to contact. Going a step further and checking out reviews online will give you an idea of what to expect from the lender.
Borrowing more than you can afford. Check the cost of the loan and make sure you can afford it. You should be comfortably able to include your repayments in your budget. You should also avoid borrowing more than you need.
Multiple applications. Every loan application shows up on your credit report. Several applications within a short period can have a negative impact on your credit score. This can make it harder for you to get a loan in the future. Select a single loan and lender that you're eligible for and that suits your needs.
Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan and all the fees and payments. Keep in mind that for unsecured loans, the lender can initiate legal proceedings against you if you don't repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector. With secured loans, your loan security can be repossessed by the lender if you fail to make your repayments.
Can I get a car repair loan with bad credit?
Yes, you can get a loan with bad credit, but you may not be eligible for all the options stated above. To avoid getting rejected, read through the lender's eligibility criteria carefully. If you don't meet all the minimum requirements, you shouldn't apply for that loan. You should also keep in mind that bad credit applicants usually pay higher interest rates and fees. This means that your loan will end up costing you more. While short-term lenders tend to be more lenient and are open to lending to bad credit applicants, you should be mindful of the costs. There are also disreputable lenders, so you should do your research and make sure they're registered with ASIC before applying. Any loan that's too good to be true should arouse your suspicion.
Repairing vs replacing
If you're stuck with a hefty car repair bill totalling several thousand dollars, it might be time to look at alternatives. In some cases, you may find you're better off getting a new vehicle rather than forking out a fortune to repair your current vehicle.
If buying a new or used vehicle is a better option, you can look for finance by comparing car loans.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio
These lenders won't complete a credit check when people apply for a loan, but there are other eligibility requirements that applicants must meet. Learn more here.
Need a loan but are worried you won't be approved? Before jumping the traditional bank ship and searching for a loan shark, find out how these "lenders" operate in Australia and why you should avoid them.
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