Plenty of types of personal loans exist — or, more accurately, a type of personal loan that can be used for multiple purposes, including to pay for car repairs.
This post will guide you through reasons why a personal loan for car repairs can make sense, what you’d likely need to do to get financing and alternatives to personal loans.
Related: Can I pay off a personal loan early?
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Why Get a Personal Loan for Car Repair?
As far as what a personal loan is, here is a quick overview: Personal installment loans mean a borrower applies for a certain dollar amount. Once a loan is approved, the funds are provided to the borrower in a lump sum and paid back to the lender in regular monthly installments. Payments are based on the interest rate charged and the loan’s term.
Key benefits of personal loans include the following.
(Here’s more about each of the benefits of personal loans.)
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1. Fast Funding
If car problems are keeping you off the road or causing challenges when you drive, you’ll want a quick solution. A personal loan for auto repair can be ideal because you can often get the funding within days, especially with a lender that operates online. (Here is more information about quick personal loans.)
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2. The Money Is a Lump Sum
A personal loan is approved for a certain dollar amount and then disbursed all in one lump sum. This allows you to pay for the current auto repairs and, if you’ll have bills from more than one repair shop, you can use your loan amount to pay each of them.
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3. Usually Requires No Collateral
Typically, personal loans are unsecured, which means that you don’t have to put your car up for collateral (or anything else when it’s an unsecured loan). If you can’t repay your loan on agreed-upon terms, the lender therefore can’t repossess any collateral (although there would still be significant financial/credit score consequences).
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How to Get a Personal Loan for a Car Repair
As far as personal loan requirements, lenders often want to see:
- Good credit scores: In general, lenders offer better interest rates when an applicant has a higher credit score because this indicates that they can be responsible with debt management, which makes them less of a risk for the lender.
- Proof of income and employment: Financial institutions also typically want to verify that you have steady income and that it will be adequate to pay your debts, including the personal loan for car repairs.
- Debt-to-income ratio (DTI) that fits within their guidelines: The DTI compares your gross monthly income (pre-tax) to monthly debt payments with lower DTIs preferable to higher ones. To calculate yours divide your total monthly debt payments by your monthly income and that percentage is your DTI ratio.
High-level steps to get a personal loan include the following:
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1. Research and Compare Lenders
Lenders have plenty of leeway in their personal loan programs. During your research, check the interest rate and APR, applicable fees and loan term. Ask yourself what your payment would be.
Also, make sure that you can borrow the amount you need with a personal loan for auto repairs, how quickly you can get the money (and if that timeline is workable for your situation), and whether you’d be required to put the vehicle up as collateral (secured personal loan) or not (unsecured personal loan).
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2. Select the Loan Option You Like Most
After you’ve compared your loan options, prioritize them and then decide which one is at the top of your list. Find out how you’ll need to fill out the application (online, for example, or in person).
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3. Complete the Application
You’ll need to fill in personal information, such as your name, date of birth, Social Security number, address and phone number. You’ll likely need to prove your identity through a driver’s license or other state-issued ID and perhaps another form. You’ll probably need to verify your employment and income and provide proof of your address.
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4. Get the Money
With a personal loan, you’ll typically receive your funds in a lump sum, which you can use to pay for your car repairs.
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Alternatives to Getting a Personal Loan for a Car Repair
Although there are benefits to a personal loan for auto repairs, other options exist. Other types of auto repair loans include:
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1. Payday Loans
If you’re short on cash now but expect to have the money to pay for repairs soon, you can explore payday loans. Payday lenders will offer funds for a short amount of time, often based on how much you earn. Note that these loans usually come with high interest rates.
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2. Credit Cards
If you have a credit card or plan to apply for one, you could pay for your auto repairs this way, given that it fits within your credit limit. If your credit card offers reward or cash back points, this can be a plus. Note that credit cards typically come with higher interest rates than personal loans.
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3. Auto Equity Loan
If you’ve got equity in your vehicle, you may be able to get an auto equity loan, which is a form of refinancing. If the car is paid off, then its equity is equal to its current value and a lender may allow you to borrow up to a certain percentage of that value. If there’s still a loan on the vehicle, then the equity is the value minus the loan. You may get a better interest rate on this kind of loan but, if payments aren’t made, then the vehicle could be repossessed.
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4. Mechanic Financing
You can ask the mechanic who will repair your car if they offer financing. If so, compare what they offer with other options mentioned here.
Learn More:
This article
originally appeared on LanternCredit.com and was
syndicated by MediaFeed.org.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)*To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.SOLC0122074The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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