Are you a small business owner? Do you rely on your car to get around, visit clients or potential customers, or travel to conferences or events? Do you depend on your car, truck, or a fleet of vehicles in order to make deliveries, or just keep your business running smoothly?
If any of these circumstances sound like you, then you might consider financing for your vehicles with an auto repair loan—which you may also see referred to as an auto repair finance program. In this guide, we’ll give you an overview of how auto repair loans work, how to choose and apply for an auto repair loan, and how to evaluate the pros and cons of this method of financing.
What is an auto repair loan?
An auto repair loan is a financial instrument designed for individuals or business owners who need auto repairs, but do not have enough cash readily available to pay for them.
Auto repair loans enable you to get your vehicle fixed quickly, then pay off the debt through monthly installments over a set loan term. These loans can be used for purposes related to the maintenance of a vehicle, such as fixing vehicle damages or other auto-related expenses.
Some auto repair loans are also known as "car title loans" because a vehicle’s value is used to secure the loan. That means the total value of the vehicle can determine the amount of cash a lender will let you borrow. As soon as the loan is approved, you can get access to the funds and begin the necessary repairs.
Why are auto repair loans useful?
If you’re a small business owner and your work involves vehicles, then you’ll want to understand auto repair loans and how they work.
Since small businesses often operate on thin margins, if you’re a small business owner, you may not always have a lot of cash in the bank to cover unforeseen expenses or unexpected vehicle damages. For example, if you operate a delivery company or trucking company, you need your vehicles available and in good working order every day. If the health and performance of your business depends on your trucks, there’s no time to delay fixing a damaged vehicle. However, the cost of fixing the vehicles can be steep, making those necessary repairs painful when your budget is tight.
Loans for auto repairs are designed precisely for situations like these. Auto repair loans help individuals and business owners address unforeseen problems like damaged vehicles, or other expenses like replacement auto parts, collision coverage, new paint jobs, and more. With an auto repair loan, you can make upfront payments on your repair bills.
Another time that auto repair loans can be helpful is when there is no warranty on your vehicle, or no insurance policy in place to cover the damages. If you belong to AAA or another insurance provider, or an organization like AARP, you may be able to get some helpful and trustworthy advice from them about what’s covered and how to best handle your vehicle repair and maintenance expenses.
Who should consider an auto repair loan?
Although loans for auto repairs can be convenient, these loans are not the right solution for everyone. They are a relatively quick and hassle-free way for small business owners that deal frequently with cars or car rentals, limousines, trucks, and so on.
Before applying for auto repair loans, business owners should ask themselves the following questions: Are you someone with a bad credit history or no credit? Have you ever filed for a bankruptcy? Could you potentially pay for your vehicle repair using a credit card or savings instead?
If you don’t have a credit card and do not have enough money or savings to pay for auto repairs, then you may be a good candidate for an auto repair loan. Obtaining auto repair loans ensure that you have cash readily available to pay for any damage that might occur to your vehicle.
In a situation where you don’t have cash in the bank, don’t have access to other credit options, and need funds quickly in order to make an urgent repair, or otherwise respond to an emergency involving a damaged vehicle, auto repair loans could be a good financing option.
How to choose an auto repair loan
When choosing any type of loan, before making any decisions or financial commitments, your first step should be to get online and do some research (like you’re doing right now). If you’ve already determined that your vehicles are not covered by a warranty or insurance that could take care of the costs, that you do need to take action to repair the vehicles right away, and that you will indeed need some extra funds, then it’s time to take a close look at some specific financing options.
Here are a few of the most common options for auto repair loans:
- Finance the work with your auto repair shop: Depending on the work you need done, your auto repair shop may have some financing plans that you can use. Some auto repair shops offer payment plans, where you can get the parts and services you need and can pay for car repairs in installments.
In some cases, auto repair shops work with third-party financing companies to offer financing to their customers. Be on the lookout for high interest rates or stiff penalties for late payments. If you have the option to use a credit card, compare the interest rates from the auto shop and the credit card to see which one would cost you less in the long run. Also, be sure to comparison-shop if you can; you might be able to get a better interest rate, or overall better deal, if you go straight to a lender and get a loan, rather than going through your auto repair shop. When getting estimates and comparing prices, try to compare at least two or three different, reputable shops in your area.
Use credit cards: If you have a card with enough available credit, then you can use it to finance your auto repairs. If you are not able to pay off your balance right away, and instead carry the balance on your card from month to month, you will be responsible for paying interest. The interest rate on your card could be high, but still lower than the interest you’d pay when financing the work through a credit plan from your auto shop.
One thing that might make using your credit card attractive is the possibility of an extended warranty. Some credit cards offer an extended warranty that guarantees your purchases, above and beyond any manufacturer’s warranty. These warranties are usually available if you have a credit card from a major company such as Visa, MasterCard, or American Express. If you do, and you find out that the warranty applies to auto parts or auto repairs, this could be valuable to you and a factor to keep in mind when comparing your options.
If you’d like to learn more about credit card extended warranties, here is a helpful guide.
Get a title loan: If you have poor credit or no credit, you may want to consider a title loan to finance your auto repairs. A title loan (also sometimes called a “car title loan” or “auto equity loan”) is a secured loan where you use your vehicle as collateral. Lenders do not generally do a personal credit check before granting this type of loan, since you will be putting your vehicle up as collateral. The way it works is that after the lender approves you for the loan, the lender then places a lien on your vehicle title, and you hand over the hard copy of your title in exchange for the loan amount. When you pay back the loan, the lender removes the lien and returns the title to you. If you cannot repay the loan, however, the lender keeps your vehicle.
According to Bankrate, “title loans usually carry an interest rate of about 25 percent for 30 days. And, if you can’t pay off the loan at the end of 30 days, it will roll over with the same interest rate. That works out to about 300 percent annually.”
While there’s no harm in just looking at title loans as an option, be very cautious with them. Many consumer protection experts and financial experts consider title loans to be a last resort, or even a “predatory” practice that borrowers should avoid altogether. Car title loans are unregulated in many states, and without regulations in place, you might face extremely high uncapped interest rates. Title loans can make it uncomfortably easy for a borrower to get trapped in an unpleasant spiral of debt.
Get a personal loan: Depending on your situation, you can get a personal loan and then use the money to pay for your auto repairs. Though personal loans require some paperwork and proof of credit worthiness, they may be good options to consider.
Details like loan requirements, application process, loan amount, interest rate, and repayment schedules will all depend on the particular lender and loan. In general, these types of loans will involve a set loan term, a set repayment plan or schedule, and a lower interest rate than you would find with a credit card or car title loan. You may need to provide tax returns or company balance sheets, or submit to a personal credit check, and some loans will require collateral.
Personal lending is a highly competitive industry, meaning that you’ll have many options of lenders to consider. Websites like Lendio or Fundera allow you to compare many lenders and loan options more easily than if you were to visit, call and email individual lenders. If you’re a business owner hoping to find a loan to finance auto repairs or vehicle upgrades related to your business operations, check out either of these sites and look for “term loans” or “short term loans” to learn more about what’s available.
How to apply for an auto repair loan
Once you’re ready to apply, it’s time to get all of your paperwork together. In order to have the best chance of getting approved as fast as possible, keep your application materials organized and be sure to address all of your chosen lender’s requirements and questions.
Here are the most common things that lenders look for in their potential borrowers:
- Steady income: Almost all financing companies look for a borrower with a steady income to ensure that they will make their loan payments on time. This means that you may need to provide balance sheets, tax returns, or profit and loss statements (or all of the above) as part of your application.
- Age of your business: The age of your business is another factor that lenders may take into consideration. Typically, lenders will want to see several months or years in business before approving a loan request.
- Insurance: Proof of automobile insurance is important to some lenders, so if you have it, let them know.
- Title paperwork: Make sure you have all of your vehicle paperwork available to show proof of ownership.
- Credit history: While there are options out there for no credit check auto repair financing, if you’re looking for an unsecured loan you may come across a lender that wants to look at your personal or business credit score to evaluate your risk level as a borrower. In general, the better your credit score, the better chance you have of getting any type of loan.
Once you have everything ready, go ahead and apply for the loan. Many lenders allow you to complete an application online.
After you apply, what happens next?
After you apply, you’ll need to wait to find out whether your application is approved. The amount of time it takes to get approved will depend on the type of financing. For example, it can take days or weeks for a lender to approve or deny personal loans, and it might take anywhere from hours to days to get approved for a title loan.
Let’s say you do get approved. After your approval, you can take your vehicles to any licensed mechanic for repairs. You’ll need to make sure that the repair cost is within the limits of the amount of loan you got approved for. Ask your mechanic to give you an estimate of any charges before starting the work, so you can analyze the total cost, compare estimates, and stay within your budget.
Keep in mind that most auto repair loans are less than $10,000. For short-term auto repair loans, the Annual Percentage Rate (APR) typically ranges from 5.99% for $1000 for 36 months to 9.63% for $10,000 for 60 months. Also, remember that missing a payment on your loan has consequences, especially if you are using your vehicle as collateral for the loan.
Pros of auto repair loans
Getting an auto repair loan can help you in an hour of need. There are many benefits of acquiring a loan for auto repair. Some benefits include:
- Relatively quick application: The application process for acquiring a loan for auto repair is usually simpler and easier than many other types of loans. Most financing companies will accept applications online. You just have to fill up a short form with some basic information about yourself and your business. As soon as the forms are filled you submit them and the response usually arrives in less than an hour.
- Fast approval: Just like the submission of the application, the approval process is also very fast. The amount of the loan that you qualify for typically relies on the value of your vehicle. In most cases, as soon as the lender can verify the value of the vehicle, you get your approval.
- (Usually) no credit check: Since your vehicle serves as the collateral, auto repair specialty lenders typically do not run a personal credit check on the borrower. Therefore, having poor personal credit or no credit would not be a deal breaker. This is one reason why some people prefer title loans or auto repair specialty financing to personal loans or term loans from a bank.
- Get your vehicle fixed faster: You can get your vehicle repaired right away if a lender will approve your loan. Having access to the money will ensure that you do not have to wait for weeks or months to get your vehicle fixed while you save up enough money.
- Manage your spending: Getting an auto repair loan will enable you to make payments in fixed monthly installments. This way you will be able to manage your budget over time, rather than paying all at once.
Cons of auto repair loans
Typical auto repair loans and financing options have some big disadvantages as well. Here are some of the downsides associated with auto repair financing:
- Very high interest rates: As we already mentioned, title loans are unregulated in many states, and interest rates can get scarily high. A study by the Consumer Financial Protection Bureau found interest rates of 300% or higher. Similar to payday loans, title loans often become a trap of spiraling debt that many borrowers find very hard to escape.
- Losing ownership: Many auto repair financing companies keep the vehicle title as collateral. If you are unable to repay the debt, you can lose possession of your vehicle. According to the Consumer Financial Protection Bureau (CFPB), one out of every five title loan borrowers end up losing their vehicle!
How can Fundbox help?
Fundbox is an online financing platform that enables business owners to get access to funds so they can keep their business on track. Business owners that deal with automobiles can apply for financing that they can use to pay for things like auto repairs, or any other business expenses. Getting a credit decision from Fundbox is easy, convenient and fast: you can apply online in seconds, and get a credit decision in just hours.
At Fundbox, we believe in providing business owners with the credit to help them grow and expand. We don’t want to contribute to lending practices that can trap business owners and consumers in deep debt spirals. Instead, we do everything we can to make the process of applying for and using credit simple and transparent, so that you can get the funds you need and keep running your business successfully.
Benefits of choosing Fundbox to finance your vehicle repairs
In order to understand the benefits of choosing Fundbox for your auto repair financing, here’s an overview of what it’s like to work with Fundbox.
- Fast registration: Fundbox uses a simple and fast application and credit approval process. Just connect your business bank account and, if you have open invoices, connect your accounting software to give us insight into your business.
- Approval and credit history check: Fundbox does not rely solely on your personal credit in order to consider you for financing, which makes the approval process quicker and easier than with some other lenders. Our system analyzes your business based on many factors alongside credit, like your invoicing and transaction history. The approval process can take minutes (on average), and if you’re approved, you can receive the money in your bank account as soon as the next business day.
- Transparent platform: Fundbox provides a transparent and easy-to-understand way for business owners to get financing. The fees are flat and usage-based and are always explained up front. You only pay for the money that you use from your Fundbox account, when you use it. There are no early repayment penalties and there is no fee to apply.
How to apply for Fundbox
Prior to applying for any loan, you need to make sure that the lender is trustworthy and reliable. We hope you’ll check out the 2000+ positive reviews left by satisfied business owners. Fundbox has been featured in Forbes as an up and coming “Billion Dollar Startup” and is backed by well-known funds like Bezos Expeditions and Khosla Ventures.
Once you make up your mind to apply for an auto repair loan at Fundbox, you just need to follow the following steps.
- Register online with your basic details.
- Connect business accounts like your bank account and accounting software.
- Validate your basic business details, such as your EIN and business address.
- You will receive a credit decision letting you know whether you’re approved in just hours.
- If approved, you can begin to draw funds.
- Funds arrive directly in your connected business bank account as soon as the next business day.
Still wondering how to finance business auto repairs?
If you’re still not sure about the best way to fund your necessary vehicle repairs, or repairs and maintenance for your whole vehicle fleet, we suggest collecting all the information you can about your many options.
It takes less than one business day to register for Fundbox and find out how much credit you might be able to get. If you have any questions, send us an email or give us a call. We’ve got real people here ready to help.
Additional business loans resources:
- Term Loans
- Business loans for women
- Construction loans
- Equipment loans
- Inventory loan financing
- Truck loans
Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.