What Is An Auto Repair Loan?

How auto repair loans work

A personal loan for auto repair can help you quickly cover the cost of an urgent car repair. Here’s how getting a personal loan typically works.

1. Find the right lender and apply: Look for lenders that offer personal loans for borrowers like you. With many lenders, you can easily apply online, over the phone or at a local bank branch.
2. Provide your financial and personal information: Since personal loans are often unsecured, lenders may consider your creditworthiness, income, debt-to-income (DTI) ratio and other factors when making a lending decision. Applicants with higher credit scores may receive more favorable loan terms.
3. The lender decides and provides loan terms: The loan terms, like interest rate, payment schedule and fee structure will vary based on the lender and your financial situation.
4. Receive the lump sum loan to pay for the repair: If approved, the lender will send the money directly to you.
5. Begin your repayment schedule: After the loan is issued, you’ll begin to repay the loan on the payment schedule your lender provided. These fixed monthly payments include interest.

What can you use auto repair loans for?

While the purpose of your personal loan for auto repair is to fix your vehicle, you can use the money from a personal loan for almost anything. Generally, it’s a good idea to only take out a loan for the amount you need to repair your car. Some uses for auto repair personal loans include:

• Getting a new set of tires.
• Repairing or replacing a transmission or engine.
• Replacing brake components.
• Damages from a car crash not covered in your auto insurance policy.

Pros and cons of auto repair loans

There are several pros of personal loans for auto repair, including:

• Fast access to cash: With many personal loans, you can receive money within a few business days if approved.
• Simple application process: Applying for a personal loan is a straightforward process that you can complete online, over the phone or in person, depending on the lender you use. You’ll need to provide some personal and financial information, like your date of birth, income and Social Security number (SSN).
• Fixed payment schedule: Set payments can make it easier to budget. Plus, you know the exact payoff date for the loan.
• Flexibility to use the money for other needs: Though you may take out a personal loan for a car repair, you can use the money for almost anything.
• Timely payments may help build credit: Payments for personal loans are generally reported to the credit bureaus, meaning responsible loan management and timely payments could help your credit score.

Before you sign on for an auto repair loan, keep these potential downsides in mind:

• Interest rates: Since personal loans are unsecured, they may have a higher interest rate than other types of secured loans. However, the interest rate on personal loans can be lower than on credit cards.
• Creditworthiness requirements: These vary by lender, but because personal loans are unsecured, approval depends on your finances and creditworthiness. If you qualify with a lower credit score, it may mean you’ll receive a higher interest rate.
• No revolving credit: Since personal loans are installment loans, you’ll receive a lump sum when you take out the loan and then pay it back over the subsequent months or years. If another financial need arises, you’ll need to take out another loan.

Alternatives to auto repair loans

Here are some alternatives to auto repair loans:

• Check your insurance coverage: Before you pay out-of-pocket for a car repair, check your insurance coverage to see if they’ll cover any part of the repair
• Use a credit card: It may make sense to use a credit card to cover the repair if you plan to repay the balance quickly. Some credit cards may also offer periods of 0% interest on purchases which may be beneficial if you qualify and need more time to come up with the money to cover the repair. Once the promotional period ends, you’ll start accruing interest at the regular rate on any remaining balance.
• Use funds from a savings account: If you have money set aside in a savings account or emergency fund, a sudden auto repair could be the perfect time to dip into that account

Deciding whether an auto repair loan is right for you

There are several things to consider as you decide if an auto repair loan is the right option for you.

• If you can afford to repay the loan: Look at the monthly payments for the amount, you’ll need to cover your repair. If you can comfortably afford the payment alongside your current bills, an auto repair loan may be worth considering.
• What loan terms are available: The loan terms you qualify for depend on your creditworthiness, income and other factors. Check with different lenders to see what terms you may qualify for.

With a Citi^® Personal Loan, you can check your rate with no impact to your credit score.¹

Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.

This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

¹To check for offers you may qualify for, Citi conducts a soft credit inquiry. If you are presented with an offer and choose to proceed with the application process, Citi will conduct a hard credit inquiry which may have an impact on your credit score.