Many people rely on their cars for everything from commuting to and from work to bringing the kids to their extracurricular activities. But the cost of car ownership is increasing. For many, making insurance payments and paying for fuel are challenging enough, but when you factor in the price of maintenance or emergency repairs, coming up with the funds can be even more difficult.
While having money stashed away in an emergency fund is the best solution, many people don’t have the resources to save for unplanned expenses. If you rely on your car, it might make sense to consider taking out a personal loan to finance the cost of car maintenance or repairs.
Why Take Out a Personal Loan?
A personal loan is a lump sum of money you can typically borrow from most banks, credit unions, or online lenders. It can be used for many reasons, including car maintenance. You’ll repay the loan to the lender with interest in fixed monthly installments over a set period. The details of your loan will depend on factors such as your credit history, income, and the amount and term of the loan.
If you need to pay for car maintenance or repairs, a personal loan can be a good alternative to other forms of financing, like payday loans. With payday loans, you will need to pay the loan back by your next payday, which can be difficult for many people. The interest on a payday loan is usually very high, with the average APR on a payday loan coming in at 400%.
A title loan is another alternative many people use to cover maintenance costs, but these loans also have risks. Title loans must usually be paid back in a short period of time and often have very high interest rates as well, often to the tune of 300%. Additionally, your vehicle will be used as collateral for the loan, which means the lender can repossess your car to recover the losses if it is not paid.
How Do You Qualify for a Personal Loan?
Whether you qualify for a personal loan will depend on the lender’s requirements and your credit history and income. You will need to provide proof of income, and the lender will run a hard credit check to assess your creditworthiness, which may drop your score by a few points. The good news is that even if you have no credit or a low credit score, you may still qualify for these loans, but you may need to pay a higher interest rate or provide collateral to help secure the loan.
Things to Consider When Taking Out a Personal Loan for Car Maintenance or Repairs
Understanding the loan terms and repayment agreement is important for ensuring that the loan is a good fit for you.
Here are some things to consider when taking out a personal loan:
The APR
APR stands for annual percentage rate. The APR includes the interest rate and any additional fees, such as an origination fee, which is the cost of processing the loan application. These are in addition to original loan amount you borrowed.
Additional Fees and Penalties
There are also other fees you’ll want to keep an eye out for, including late payment fees or prepayment fees if you make payments outside of the arranged terms.
Repayment terms
Repayment terms vary considerably. In most cases, longer repayment terms mean lower monthly payments but higher interest rates. Finding a loan that offers repayment terms that will work for your budget is important.
The Bottom Line
Maintaining an emergency fund or balancing your budget to include ongoing car maintenance can help prepare you for when unexpected repair bills come around, but sometimes, situations arise that catch you off guard. For those instances, taking out a personal loan could be a good solution and is an option available even with less-than-perfect credit.
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