Car repair loans

An unexpected car repair bill can be a shock to the budget. If you don’t have an emergency savings fund, you may have to look for other ways to pay for the repairs and get back behind the steering wheel.

Car maintenance and repair costs are often some of those expenses in life that come just when you are least expecting them. Some people plan ahead and set money aside for these types of expenses, but for others, it can mean a frantic search under the bed or in worn jean pockets for spare change, or a pleading call to the bank of mum and dad. But, if you need money to help pay for car expenses, what other options are available to you for credit to cover the costs? Is it worth considering a loan to help pay for any repairs?

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What is a car repair loan?

When it comes to finding a loan to help pay for car repairs, there are a few options you could consider. While there is no such thing as a specific loan just for car repairs, you could look into getting a personal loan to cover the costs. You can compare personal loans with Canstar.

Another option could be a small amount or payday loan, but keep in mind that lenders can charge very high fees on this type of loan, plus government fees or charges, default fees or charges and enforcement expenses. It’s important to remember that payday loans can often be expensive and should only be used as a last resort, or avoided if possible.

→ Read more: Payday loans vs personal loans

Can I get a loan to fix my car?

If the cost of repairing your car exceeds any savings or spare money you may have, a loan may be an option worth considering. Bear in mind, though, that any interest or fees charged will likely result in you paying more to fix your car over the long term.

Before opting for a loan, it could be a good idea to speak with family or friends to see if they could lend you the money instead for a cheaper rate, although the National Debt Helpline warns it’s important to be clear with each other about repayment expectations if you decide to go down this route. Other less expensive options may also be available for people on low incomes, pensions or Centrelink payments.

Depending on your circumstances, you may want to check out the no interest loan scheme (NILS), which provides eligible individuals and families on low incomes with access to affordable credit. The NILS website states that these loans of up to $1,500 come with no interest or fees attached and can be used for car repairs, among a few other purposes. There are also loan options specifically for people on a pension or Centrelink payments who might  find it hard to access affordable credit.

Some people may also decide to pay for car repairs using a credit card, or a buy now pay later (BNPL) service such as Afterpay, which are now accepted at some car repair providers. Both options allow you to spread your payments out over time, but it’s important to check out any interest rates and fees charged, and make your repayments on time to avoid unexpected late fees or a negative impact on your credit score. The interest rates on credit cards, for example, can be quite high compared to a personal loan if you don’t pay your balance off in full every month.

Below, we have outlined a few of your options if, after considering all other options, you decide a loan is the best way to cover your car repair costs:

1. Personal loan or car loan
2. Payday loan (note: generally payday loans can be riskier and more expensive than other types of loans)
3. Peer-to-peer lending
4. Buy now pay later service

1. Personal loan or car loan

A personal loan is typically used to pay for important life events and other big expenses, such as to help with costs towards a car, wedding, holiday or home renovation. However, it may also be possible to apply for and use a personal loan for smaller expenses, such as car repairs.

Personal loans usually have a longer repayment period than payday loans or buy now pay later services, typically between one and seven years. They can come with either a fixed or variable interest rate. Lenders may charge a range of fees on them, such as application fees, monthly service fees and default fees. Personal loans can be secured by an asset (such as a car) or unsecured. Secured loans generally have lower interest rates than unsecured ones, but come with the risk that you could lose the asset if you fail to keep up with your repayments.

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2. Payday loan

A payday loan, also called a small amount loan, is a loan of up to $2,000. You have between 16 days to one year to repay the loan. Lenders can’t charge interest on payday loans, but they can charge very high fees. According to Moneysmart, most payday lenders charge an establishment fee of 20% of the amount borrowed and a monthly service fee of 4% of the amount borrowed. On a $2,000 loan, this would mean a $400 establishment fee and up to a $80 monthly service fee, plus your regular repayments to pay off the loan. Lenders can also charge government fees or charges, default fees or charges and enforcement expenses.

3. Peer-to-peer lending

Peer-to-peer (P2P) lending is where individuals can seek loans from private lenders (their peers) rather than using a traditional lender. They have’s become increasingly popular in recent years as a way of accessing finance. Any interest charged is set by the private lender.

4. Buy now pay later

Some buy now pay later (BNPL) services, such as Afterpay and Openpay, allow consumers to pay for car repairs. You can check with your car repairer which, if any, BNPL services are available to use for this purpose. Keep in mind terms and conditions can apply, including fees and charges as well as minimum and maximum borrowing limits. If you don’t make BNPL repayments on time, your credit rating may be affected, as with most other forms of credit.

Can I get a car repair loan if I have bad credit?

While it may be possible to apply for a loan with a poor credit score, it could be more difficult to get approved compared to someone with a good credit rating. There are three main credit reporting agencies in Australia – Equifax, Experian and Illion. Banks and other loan providers will usually check with one of these agencies to find out your credit score. A lender may consider this score as part of working out your wider borrowing capacity.

If you have a poor credit score, a lender may decline your application for certain products, or you might be offered a loan with a higher interest rate.

→ You can check your credit score for free

What are the most common car repairs and how much do they typically cost?

The most common car repairs in Australia over the last year were replacing a windscreen; re-gassing air conditioning; and replacing brake pads, tyres, spark plugs, batteries and clutches, according to car servicing website AutoGuru. Costs can vary depending on the make and model of your car, but to give you an idea, we’ve outlined some of the average costs for these types of repairs below.

• Replacing a windscreen. A windscreen replacement is usually between $200 and $600
• Regassing car air conditioning. A car air conditioning re-gas cost may cost as little as $115, while a minor repair to the air conditioning may cost up to $300. To replace the air compressor, you could be up for a bill of between $500 and $1,400 for parts and labour.
• Replacing brake pads. Brake pads and disc rotors for an average car usually cost between $300 to $350, but can be over and above $600, depending on your car and what needs replacing. If you own a high-performance car with larger brakes, the price could increase to over $1,000.
• New tyres. The price of tyres can vary depending on your car and the type of tyre you want. Costs can range from between $100 to over $700 per tyre.
• Replacing a car battery. The average car battery replacement cost will vary depending on the car, the model and how old the battery is. On average, you can expect to pay between $130 to $500 to have your car battery replaced. If you own a hybrid or electric vehicle, the cost to replace the battery could range from $2,000 up to about $12,000.
• Replacing a clutch. A clutch on a standard vehicle can be around $900 to replace, while high-powered models can cost upwards of $3,000.
• Replacing spark plugs. The average cost to replace spark plugs starts at around $120 and can go up to more than $400, depending on the type of spark plugs and if other components need to be removed to allow access.

The above estimated costs have come from a variety of sources including AutoGuru, Oneflare, Deans Windscreens, Repco and carpart.com.au.

What is the most cost-effective way to repair my car?

In an ideal world, the most cost-effective way to pay for car repairs would be from your own savings or spare income. You could consider building an emergency fund by putting aside a small amount of money each month into a separate bank account and having it on standby, should an unexpected repair bill take you by surprise.

If this is not possible, the most important thing to check with any type of loan or credit product is generally its cost – the interest rate and any extra fees and charges that apply. Try and find a low-rate or no-interest product with minimal fees to help fund your car repairs and, if possible, aim to make all the repayments on time so you avoid costly late payment fees (plus a potential negative impact on your credit rating).

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