Car Repair Loans: What to Know Before You Apply

Car repair loans are the furthest thing from your mind when you’re cruising down the highway, jammin’ to a 90s banger (Vanilla Ice, anyone?). Then BAM! Your engine blows and steam billows from under the hood. Too bad your wallet is too light for a trip to the mechanic. Wouldn’t it be nice if “Ice Ice Baby” could magically fix the damage to your overheated engine? 

Unfortunately, the closest thing we have are car repair loans. The name might not top the charts, but it sure can give you a hit solution to your check-engine blues. Here’s everything you need to know about car repair loans in Canada. 

What are car repair loans?

Car repair loans are tailored to get your car moving, kind of how “Ice Ice Baby” was written to get us groovin’. But let’s not limit the scope of these loans to just one category. Think of them like tracks on your 90s mixtape, an eclectic lineup for any vibe. 

That’s because car repair loans are actually personal loans or lines of credit that you can use to pay for car repairs – or anything else you might need. They’re almost as versatile as Dave Grohl, who recorded the first Foo Fighters album alone by playing every single instrument himself! Similarly, personal loans can cover a multitude of needs, car repairs included.

How do car repair loans work?

Car repair loans work like any other type of loan. Once you’ve been approved, the lender will deposit the loan amount into your account or open a line of credit in your name. You then use this money to pay for your car repairs. 

To repay the loan, you make regular payments over a specific period of time with interest. The interest rates, loan amounts, and terms can vary wildly from one lender to the next. 

It’s kind of like rocking out Sir Mix Alot and Céline Dion on the same playlist. Sure, both are musicians, but in two completely different music genres. Similarly, car repair loans can work a little differently based on things like your credit score, financial situation, and where you get the loan.

Secured vs unsecured loans for car repairs

When looking into car repair loans, you’ll come across two main types: secured and unsecured loans. Secured loans require some form of collateral—usually your car—whereas unsecured loans don’t. 

While secured loans tend to offer lower interest rates because they’re less risky for the lender, you could lose your asset if you default on the loan. On the other hand, unsecured loans tend to have higher interest rates but at least you won’t lose your car.

Types of car repair loans

Yes, there are different kinds of car repair loans, and they’re almost as diverse as the 90’s music scene. From the boy band charm of NSYNC to Nirvana’s counterculture grunge, the world of car repair loans offers a hit list of options. It’s all about choosing the best beat for your financial vibe. 

Track 1: Installment Loan

Installment loans are a type of loan where you borrow a specific amount of money and pay it back with regular payments (installments) over a set period of time. Generally, the amount of each payment stays the same, with a portion going to the principal and a portion to interest. Installment loans can be either secured or unsecured.

Installment loans typically have lower rates compared to other types of loans and the term is fixed, which means you know exactly when the loan will be paid off and how much interest you’ll pay.  

However, you have to apply for one which means there will be a hard credit check that could potentially impact your credit score. Also, the monthly payment is usually higher than if you borrowed the same amount through a line of credit or credit card. 

Track 2: Line of Credit

Unlike an installment loan, a line of credit is revolving, which means you can borrow the money and pay it back as often as you need without having to apply for a new loan each time. That makes the line of credit a huge hit for people who want to borrow on repeat without hard credit checks harshing their vibe.  

You only pay interest on the money you’ve actually borrowed or “drawn” from your line of credit. And the rate is variable, which means it fluctuates over time based on market conditions. That means the amount of each payment can change from month to month.  

If you have static payments that don’t change, the amount that goes to the principal vs interest will fluctuate instead. That can make it hard to know exactly when your loan will be paid off and exactly how much interest you’ll end up paying. 

Plus, the interest rate on a line of credit is usually quite a bit higher than the rate on an installment loan. A line of credit can either be secured or unsecured. 

Track 3: Credit Card

Credit cards are basically the “Macarena” of loans – insanely catchy, convenient, and literally everyone knows the moves! That’s because credit cards are accepted almost everywhere and the average Canadian has at least two in their wallet, making them an infamous tune on our financial playlist. 

Credit cards are unsecured and the credit limit is typically lower than an installment loan or line of credit. The minimum monthly payment is a lot lower than the monthly payment on an installment loan. But it’s mostly interest and specifically designed to keep you in debt as long as possible. 

If you’re not careful, those double-digit interest rates can trap you in debt that’s hard to escape. In this way, credit cards are a lot like the most hated earworm of the 90s – but worse because they eat your wealth instead of just your sanity. 

For example, a credit card with a 21.99% interest rate and a $2,000 balance will take you over 17 years to pay off. And the amount of pure interest you pay back is 2.5 times more than what you borrowed! As you can see, it’s easy to get stuck in credit card debt like the Macarena gets stuck in your head. 

Track 4: Title Loan

Then we have the car title loan, which is the ‘I’m Gonna Be (500 Miles)’ 90s one-hit-wonder of lending. A car title loan is a type of secured loan where you use the title of your vehicle as collateral to secure the loan. That means the lender registers a lien on your car to, essentially become a part-owner in exchange for financing. 

If you repay the loan in full, the lien is removed, and you regain sole ownership of your car. But default on the loan and you’re gonna be the one who walks 500 miles to get anywhere because the lender repossessed your car. 

Car title loans are a smash hit for people who need a car repair loan but have limited borrowing options thanks to poor credit or other financial roadblocks. Sure, it’s a way to get cash quickly, but it’s risky because you could lose your vehicle if you fall behind on payments.  

Track 5: Payday Loan

Finally, we have ‘The Chicken Dance’ version of car repair loans. That ridiculous ’90s jam plagued every social scene from weddings to school assemblies, just like how payday lenders have infested almost every major street corner and strip mall from coast to coast. 

Payday loans offer a seemingly straightforward, quick-fix solution for surprise car repairs. Bad credit? No problem. This type of car repair loan might seem as simple as flapping your arms and twirling in circles. But the music stops when the harsh reality of obscenely high interest rates and fees set in.

They’re typically due in full on your next payday, hence the name, and failing to pay it back on time can lead to a devastating debt spiral. Payday loans should be your last resort, only to be used when all other avenues have been exhausted.

Do car repair shops offer financing?

The idea of car repair shops offering financing options might seem like an impossible collab. But like that Radiohead and Mariah Carey mashup, garage financing is a thing! Some car repair shops offer payment plans, usually through third-party lenders. 

For example, Fountain Tire offers payment plans through a buy now, pay later (BNPL) company called Flexiti. Some Mr Transmission locations offer flexible payment plans for transmission repairs. And it’s not uncommon for major car dealerships to offer financing options as well, either through their own in-house financing department or a third-party lender. 

However, the terms of such loans can vary widely, but interest-free financing plans tend to be the most common. Generally, these financing plans are only interest-free as long as the balance is repaid in full by a specific date. But borrower beware, you need to keep an ear out for explicit lyrics, aka sneaky stuff in the fine print. 

Failing to pay off the balance on time can flip that interest-free loan into a “Mo’ Money Mo’ Problems” situation faster than you can say Biggie Smalls. You’ll end up getting charged backdated interest from the time you took the loan, and the interest rate could be as high as 40% or more!

A cautionary tale about financing plans

I once worked for a private lender who provided this exact type of financing for businesses across Canada. I handled an account that had over $8,000 of backdated interest applied because the customer didn’t pay off the full balance by the due date. He was irate, naturally. But it was all there in the fine print.

And the real kicker? His new higher balance was now accruing 30% interest going forward. That means the backdated interest was being charged interest. Yikes!

Qualifying for a car repair loan

For many bands of the 90s, their rise to fame was based on the right mix of talent and image. In that same vein, qualifying for a car repair loan is typically based on your credit score, which demonstrates your talent in handling credit, and your overall financial situation which gives lenders a more complete image of your creditworthiness. 

Generally, you need: 

• A good credit score
• Steady and gainful employment
• Proof of income (paystubs, a letter from your employer, etc)
• A low debt-to-income ratio
• A bank account  

If you hit these high notes, you’ll likely qualify for a car repair loan with a decent rate and favourable terms from a traditional lender, like a bank or credit union. But what if your credit history is kind of a flop? Or you have an unconventional job with unpredictable income? 

The top 5 private lenders who finance car repair loans

For some people, trying to get a loan the traditional route feels like trying to download an entire album from Limewire – a frustrating waste of time. Even if your credit history played out like Woodstock ‘95 instead of Mariah Carey’s career, you can still get a ‘record deal’ from these top private lenders:

Loans Canada

Loans Canada is the pioneer of loan comparison sites in Canada. They’re partnered with traditional and private lenders who offer personal loans for a variety of needs, including car repairs. The platform helps match you with credible lenders across the country and you can compare several quotes to find the best deal for your situation.  

Loan Connect

Loan Connect is an equally impressive loan search engine that lets you instantly search and compare lenders. Their network spans a broad range of lenders, including traditional lenders and private lenders who offer bad credit loans. No matter your situation, you have a good chance of finding the right loan and lender for your unique situation.

Fairstone

Fairstone is a homegrown Canadian private lender offering personal loans that you can use for car repairs. They accept borrowers with bad credit and their personal loans can be either secured or unsecured. If you apply online, you’ll get an approximate quote based on a soft credit check. 

Spring Financial

Spring Financial focuses on offering personal loans aimed at establishing or rebuilding your credit score. They offer diverse loan types like unsecured and secured personal loans that you can use for car repairs, auto loans, mortgages, and beyond.

Unique to Spring is their credit enhancement program named “The Foundation,” which is open to everyone regardless of their credit score or financial situation. It works as a type of savings loan in which you agree to make monthly payments for a year, and each of these payments gets reported to credit bureaus. At the end, you receive $750 saved on your behalf, along with a guaranteed loan offer of $1,500 at an interest rate of 18.99%, known as the “Evergreen Loan.”

MOGO

MOGO is a fintech firm based in Canada that offers an array of financial products and services such as personal loans, mortgages, and a platform for trading stocks. Their personal loans can be used for car repairs and are unsecured with a fixed interest rate, which depends on your credit profile and where you live. These loans come with flexible repayment schedules, and you’re also given the freedom to pay off your loan at any time without incurring any penalties.

Managing Your Car Repair Loan: Lessons from Alanis Morissette

Managing your car repair loan doesn’t have to feel like trying to follow the plot-twisting lyrics of Alanis Morissette’s breakout album. Here’s a simple guide to keep you on track:

1. “You Oughta Know” Your Budget & Credit Score

Like the assertive title of this 90s hit suggests, you should have a firm grasp of your budget. Understand your income, expenses, and where a car repair loan repayment fits in. A car loan calculator can help you run different scenarios and how they impact your budget. 

You also want to stay on top of your credit score by monitoring it regularly. You’ll be able to see how your borrowing behaviour impacts your score. Plus, if you had to get a bad credit loan to finance your car repairs, you can use this opportunity to improve your score and watch your progress to keep you motivated. An app like Borrowell lets you check your credit score for free as many times as you want without hurting your score. 

2. “Jagged Little Pill”: The Reality of Minimum Payments  

Just like Morisette’s album about the dark side of relationships, only making the minimum monthly payment can hurt your financial wellness. By paying more than the minimum payment, you’re reducing the principal balance faster, which means you pay less interest over the life of the loan. That keeps more money in your pocket and gets you out of debt faster. 

“Isn’t it Ironic” to Stay in Touch With Your Lender?

Don’t let your car repair loan become the blackfly in your Chardonnay. If something happens that might prevent you from making your payment, get in touch with your lender right away. They might be able to offer solutions such as payment extensions or restructuring the loan. This will protect your credit score while you get back on track.

“Head Over Feet” With On-Time Payments

Lenders and credit bureaus fall in love with borrowers who pay on time without fail just like Alanis fell head over feet for the mystery man in her hit song. Paying your loan on time – every time – not only helps you avoid late fees but also positively impacts your credit score. 

“Hand in My Pocket” for Extra Payments

When you put one hand in your pocket and discover some extra money, either literally or figuratively, use it to make additional payments on your loan. This will help to pay it down even faster and save on interest.

“You Learn” From Your Loan

In the spirit of Morissette’s introspective track, regularly review your loan. Check your progress, reassess your budget, and adjust your repayment strategy if necessary. This is especially true if you finance car repair loans with a line of credit or credit card. Things like your interest can change, affecting the total cost of credit and how long it will take to pay off your remaining balance. 

“All I Really Want” Is To Payoff This Loan!

Set a target for when you want your car repair loan to be fully paid off. This will help to keep you motivated and focused on the end goal. 

Managing your car repair loan can be as catchy as a ’90s banger when you apply these strategies. Just like Alanis turned heartbreak into hit songs, you can turn a car repair loan into an opportunity to build healthy habits that enhance your financial situation. 

The pros & cons of car repair loans 

I get it, car repair loans can feel like a Bitter Sweet Symphony. Surprise expenses are stressful, but so is living without a car – especially if you need it for work or other obligations. Car repair loans can both save the day and also have their fair share of downsides: 

When to repair vs when to replace your car

The decision to repair or replace your car is kind of like trying to decide if you should buy the greatest hits album or the full discography. But the stakes are higher because it’s your money and credit score on the line. 

If you have an older car, paying for the odd repair when it pops up is like choosing the greatest hits album. You can save money by fixing a few issues here and there instead of taking on a much bigger loan – especially in today’s interest rate environment with inflated car prices. But if you’ve got an “Achy Breaky” car on your hands, you may need to say “Bye, Bye, Bye.” So when exactly should you buy a new or new-to-you car?

Here’s the general rule of thumb: if the cost of repair is more than half the car’s current value or if your car regularly needs expensive repairs, it’s probably time to buy a new one. However, if the repair would significantly extend the car’s lifespan and it’s otherwise in good condition, repairing it is probably more cost-effective.

The encore

Car repair loans can be the “Hero” Bonnie Tyler sang about (ok, that’s an 80s jam) but they can also be the Scrub that TLC warned us about, mooching away our hard-earned bacon if we’re not discerning. Always consider your financial situation, shop around for the best rates, and hum “I Don’t Want to Miss a Thing” to yourself while carefully reading the fine print. 

Life is a highway, and the right car repair loan can help you ride it all night long. Hey, sometimes an 80s banger sums it up best. I don’t make the rules. 

FAQs about car repair loans