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Car repair loans: What is a car repair loan?

Mechanic working on car

Dealing with car troubles can be a real hassle and often quite expensive. If you’re caught in a jam trying to foot the bill for a big service or unexpected repairs, you might consider taking out a car repair loan (also referred to as a personal loan) to help cover the cost.

Car repair loans (not to be confused with car loans, which are used to fund the purchase of a vehicle) are specifically designed to help car owners pay for car repairs to get their car back on the road.

Car repair loan options 

There’s a range of different financing options available to help pay for car repairs. Let’s take a look at some of the pros and cons of each option to help you make a more educated decision:

Car repair loans:

Here are some of the pros and cons of using a car repair loan to pay for vehicle repairs:

Pros
Cons
- They usually have fixed interest rates, meaning the repayment amount should be the same each time, making it easy to budget around
- Interest rates: while rates are usually lower than credit cards and payday loan rates, interest payments will still add to the overall cost of the repairs
- They’re typically unsecured loans, which shouldn’t require any collateral
- Adds to debt load if already have other debt
- Quick approval and funding if eligible
- Could be limited to certain loan amounts if the lender has a set minimum or maximum loan amounts
- Could help borrower build a positive credit history if regular repayments are met

Personal loans

These are some of the pros and cons of taking out a personal loan to cover the cost of car repairs:

Pros
Cons
- Generally, quick funding once approved
- Interest rates: while rates are usually lower than credit cards and payday loans, interest payment will still add to the overall cost of the repairs
- Option to fix in a competitive interest rate with a fixed rate loan. Going with a fixed rate also means predictable repayment amounts.
- Impact on debt ratio
- Choice of an unsecured personal loan (meaning collateral isn’t required)
- Could come with fees or other penalties
- Making repayments on time can help build a positive credit history
- You generally need a good credit score to get approved or to get a good interest rate

Credit cards:

Using a credit card to pay for car repairs isn’t necessarily the worst option, so long as you’re able to pay off the balance before the due date. If not, you could wind up paying sky-high interest charges!

Here are some of the pros and cons of paying for car repairs with a credit card:

Pros
Cons
- Potential to earn rewards and benefits depending on the credit card you choose
- You could cop high interest rate charges if you don’t pay off your balance on time.
- Convenient when urgent access to funds is needed
- Could negatively impact your credit score if you miss payments
- Limited to a set credit limit
- Less payment flexibility

Payday loan:

You might’ve heard of people using ‘payday’ or ‘instant cash loans when they require urgent funds. The negatives typically far outweigh any potential positives when it comes to payday loans – so it’s best to proceed with great caution and avoid them at all costs.

These are some of the pros and cons of using a payday loan to pay for car repairs:

Pros
Cons
- Almost immediate access to funds if approved
- Extremely high interest rates
- Short repayment terms - typically just 14 days!
Usually have a range of fees
- These types of loans can be notorious for scamming people
- Stringent eligibility criteria – meaning that people who aren’t in a position to pay back these loans could get approved and then wind up in a debt spiral 

The verdict:

As you can see, there are pros and cons for each finance option. Going down the credit card route, you could potentially save on interest in the first year by finding a card with a 0% promotion. However, you’ll get stuck with high interest fees if you haven’t paid your debt once the honeymoon period ends.

And while payday loans might sound promising at first, they can have a nasty bite if you don’t pay off your debt within the typical 14 days and could have you paying hundreds or even thousands of dollars over the original price. Mozo recommends you stay well clear of payday loan options. 

Generally speaking, personal loans and car repair loans typically charge the least interest compared to the other finance options mentioned above. However, you’ll need to decide what the best option is for you based on your specific financial situation.

Tips on cutting down your car repair bill 

It's no secret that car repairs can be costly. Here are a few ways to potentially reduce costs:

  • Dealership repairs vs. local panel beater: While dealership repair centres might offer you an espresso and fancy biscuit while you wait for your vehicle – this star treatment usually comes at a premium price. I’d rather skip the coffee and go to a local no-frills mechanic who won’t charge extra for all the bells and whistles.
  • Shop around with mechanics: On that note, don’t just go for the first mechanic you see. Ask friends and family or post in local community groups for word-of-mouth recommendations. You should also call up different mechanics to ask for a rough quote. They might hesitate to give a quote over the phone (especially if you don’t know exactly what needs repairing), but you might be able to gauge out at least a starting price. 
  • Prioritise: If you have a list of things you want to get serviced on your car, prioritise what’s most critical (anything that impacts safety and drivability) and try to save anything unnecessary or cosmetic down the track when you’ve got some more money up your sleeve.
  • Car insurance: Not only are cars expensive to run in terms of mechanics, but insurance and rego costs can really add up too. Make sure to shop around and compare car insurance policies to ensure you’re getting the best car insurance deal.

Saving for an emergency fund 

Putting money towards an emergency fund certainly isn’t as fun as saving up for a holiday, but you’ll be thanking yourself later if any unexpected costs pop up. 

It doesn’t have to be much! Even just start with $5 or $10 a week and slowly increase it. In no time, you’ll have a pile of savings in your bank that you didn't have before.

  • Saving tip: Consider saving your money in a high-interest savings account so you get a little more bang for your buck. It could even be good to make it a separate savings account you rarely use, so you’re not tempted to dip into it unless you really need to – like a digital piggy bank! Out of sight, out of mind.

Compare car loans today - last updated 28 May 2024

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Rhianna Dews
Rhianna Dews
RG146
Senior Money Writer

Rhianna, RG146 certified in Generic Knowledge and Deposit Products, has helped Aussies with finances for a decade. She's written for TechRadar, Simple Living Australia, and worked with Foxtel and Vodafone.

Afia Asha
Afia Asha
Junior Product Research Analyst

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* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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