Owning a vehicle can be pretty expensive, especially when maintenance issues arise. The thing is, regular maintenance and repairs are necessary to ensure your vehicle remains in optimal condition. However, given the high cost of maintaining and repairing your vehicle, you may want to consider financing options if you don’t have enough money available upfront.
Here’s everything you need to know about car repair loans in Canada.
Key Points
- Auto repair and maintenance loans can help provide the financing needed to cover the cost of expensive bills from auto body and mechanic shops.
- Financing options to cover the cost of car repairs and maintenance include personal loans, payday loans, and Buy Now, Pay Later (BNPL) services.
- All sorts of repairs and maintenance services can be covered with car repair financing, including general maintenance, cosmetic updates, accident damage, and safety improvement.
- To increase your chances of loan approval at a low rate, apply with a good credit score, make a larger down payment, and pay down your debt to lower your debt-to-income ratio.
What Is A Car Repair Loan?
A car repair loan is a type of financing that provides money to cover the cost of vehicle repairs and maintenance. You’ll get access to immediate funds to pay for necessary repairs and maintenance, which you’ll pay back through installment payments over a set period. That way, you don’t have to come up with the funds to pay the mechanic in full upfront at the time of service.
There are different car repair loan options available, each of which works slightly differently.
Can You Use A Personal Loan To Finance A Car Repair?
Yes, when it comes to financing your car repair, you can use a personal loan to cover your costs. A personal loan is a type of loan that provides you with a lump sum of money that you can use to cover a variety of expenses, including car repairs and maintenance. If you have bad credit or poor finances, you can offer an asset as collateral to reduce the lender’s risk, which may result in a higher loan amount and lower interest rate.
If approved, you’ll receive the funds by direct bank transfer or via e-transfer. Then, you’ll repay the loan via installment payments that include both principal and interest.
Pros
- Add Security – You can offer collateral to increase your chances of getting approved.
- Lower Interest Rate – Depending on your credit and finances, you can get a low interest rate.
- Flexible Loan Terms – Lenders offer personal loans with varying terms to cater to every borrower’s needs. You get loans with short or long terms, and loan amounts that go up to $35,000 and more.
Cons
- Harder To Qualify – If you have poor credit or finances and don’t offer any collateral, it can be much harder to get approved for a loan.
Where Can You Get A Personal Loan To Cover Your Car Repairs?
Filters
- Amount
- Up to $35,000
- Rate
- 9.99% – 34.95%
- Term
- 9 – 78 Months
- Amount
- Up to $60,000†
- Rate
- 19.99% – 34.99%*
- Term
- 6 – 120 months
- Amount
- Up to $10,000
- Rate
- Varies by product
- Term
- Varies by product
How To Apply For A Car Repair Loan
To apply for a car repair loan, follow these steps:
Step 1: Assess The Cost Of The Repair
Get a detailed estimate on the cost of repairs from a mechanic or auto repair shop. Make sure you understand the full cost, including parts, labour, and taxes.
Step 2: Shop Around For Loans
Do some comparison shopping using a platform like CompareHub to find lenders and compare their offerings. In particular, pay attention to the loan amounts, interest rates, and eligibility requirements with each lender.
Step 3: Choose The Best Loan Option
Decide which lender to work with based on your credit score and financial situation. Ideally, you’ll pick the loan that provides the loan amount you need to cover your repairs and the lowest rate to minimize loan costs.
Step 4: Fill Out The Application
Complete the application and supply all required documentation, which may include the following:
- Proof of identity (ie. driver’s license or passport)
- Proof of income (ie. pay stubs or bank statements)
- Employment status (ie. letter of employment from your employer)
Step 5: Wait For Approval And Funding
Depending on the lender, you may receive notice of approval within a few hours or a few days. Funding should arrive shortly after. You can then use the funds to cover the cost of your car repairs.
How To Qualify For An Auto Repair Loan?
As with any type of loan, there are a few qualifications that must be met in order to be approved for an auto repair loan. Depending on the lender you work with, there might be some variation in the requirements, but lenders generally look at the following factors:
- Credit Score – Banks and credit unions typically conduct a credit check and have a minimum credit score that you must meet. If you have a bad credit score, you can still qualify for a car repair loan, but you may need to find a lender that accepts bad credit borrowers, such as alternative lenders.
- Income – Lenders will require proof of income in order to assess whether you can afford to repay the loan.
- Debt-To-Income (DTI) Ratio – Your debt relative to your income — known as your debt-to-income ratio — is another important factor that lenders look at. The lower the ratio, the higher your chances of qualifying for a loan and getting a lower rate.
- Employment Stability – Generally, lenders require that you be employed for a minimum of 3 to 6 months, showing that your job is stable and reliable enough to last at least until the end of the loan term.
- Bank Account – Lenders usually require you to have a bank account that has been active for at least 3 months. This is required for the funding and repayment of your loan.
Will My Car Warranty Cover A Repair?
Car warranties cover certain repairs. The exact coverage depends on your specific warranty and the repair required.
Manufacturer Warranties
Warranties that come with vehicle purchases from the manufacturer typically cover the following:
- Factory defects
- Simple mechanical problems
- Powertrain (engine, transmission, and drivetrain components)
- Rust and corrosion damage
Extended Warranties
Extended warranties cover additional components and last longer than a manufacturer’s warranty. Components covered under an extended warranty may include the following:
- Engine
- Transmission
- Electrical components
- Steering
- Brakes
- Heating/air conditioning
Will My Car Insurance Cover A Repair?
No, car insurance policies typically don’t cover standard car repairs. That is, unless the damage was caused by an accident or an incident that is specifically named under your policy. For example, car insurance may cover repairs for damage caused by the following:
- Car accidents
- Theft
- Vandalism
- Fire
- Natural disasters
- Falling objects
However, standard car insurance policies typically don’t cover repairs for non-accident-related damage.
Other Car Repair Financing Options
Besides a personal loan, you can use various other financing options to cover your car repair costs.
Credit Cards
If you have a credit with a high credit limit, you may be able to put the cost of repairs or maintenance services on your credit card. That way, you can prolong the full repayment of the cost.
That said, this may be a good option if you can come up with the money to fully cover these repair costs soon, ideally before the next billing period. Credit card interest rates are some of the highest in the world of financing. The longer you carry a balance forward, the more interest you’ll pay.
Pros
- Immediate Access To Funds – With access to your credit account, there’s no need to wait for loan approval or access to the borrowed funds. Just swipe your card and your repairs or maintenance fees are covered.
- 0% APR Promotional Offers – You may be able to apply for a balance transfer credit card that offers a 0% promotional rate for the first few months. During this time, you can work towards paying off the balance without having to pay interest. Just keep in mind that once this promotional rate period expires, the regular rate will kick in, so you’ll want to pay off the balance before this happens to minimize costs.
- Flexibility – You can use credit to cover just about any expense with no restrictions on what you pay for, as long as it’s legal.
Cons
- High-Interest Rates – If not paid in full, your balance will be charged interest. Credit cards come with very high rates upwards of 23.99% and over, so the higher the balance and the longer you carry it, the more interest fees you’ll pay.
- Effect On Credit Utilization – The higher your balance relative to your credit limit, the higher your credit utilization ratio will be. This can have a negative effect on your credit score.
- Temptation To Overspend – With access to credit, you may be tempted to spend more than you need to. Only use your credit card if you have the financial discipline to spend responsibly so you don’t accumulate more debt than necessary.
Buy Now, Pay Later (BNPL)
Some car repair shops may use Buy Now, Pay Later (BNPL) services that allow customers to pay for car repairs and maintenance services. However, it may not be available everywhere. With BNPL, you can split the cost of your bill into several installment payments over a set term, sometimes with no interest.
Check with your mechanic to see if they accept BNPL services and review the repayment terms to steer clear of high fees or interest charges.
Pros
- Interest-Free Payments – Depending on the BNPL service provider, you may be able to take advantage of 0% interest while spreading the costs over a longer period of time, as long as you make payments by the due date.
- Quick Approval – BNPL is quickly available at the point of sale, with much less invasive application processes compared to traditional loans.
- Alternative To Credit Cards – Compared to credit cards that charge high interest on outstanding balances, you can use BNPL instead to avoid such interest.
Cons
- Temptation To Spend More – Like credit cards, the ability to spread out the cost of repairs or maintenance rather than pay in full upfront can make it tempting to spend more than you can afford.
- Late Fees – If you miss your payment due dates, you could be faced with late fees and interest charges, which will increase the total cost.
- Not Available Everywhere – Not every repair shop will offer BNPL. You’ll need to ask around to see where these services are offered before you can take advantage of them.
Car Repair Payday Loans
If you need a small amount of cash quickly to cover a quick car repair, you could opt for a payday loan. Payday loans are short-term loans that have extremely high rates that can range between 300% to 600%. You can only borrow up to $1,000 to $1,500, depending on the lender. These loans, like personal loans, have their pros and cons.
Pros
- Fast Funding – Many payday lenders are able to approve and fund applicants within a couple of hours to a couple of days.
- No Credit Check – Many payday lenders also do not require a credit check, making it a good choice for those with poor credit.
Cons
- Payday Loan Cycle – One of the main dangers of a payday loan is the payday loan cycle. Individuals who are unable to repay the loan can get trapped in a payday loan cycle.
- High Cost – Payday loans have a very high cost of borrowing due to its short terms, high rates and fees.
Types Of Car Repairs You Can Cover With A Loan
You can use the money from a car repair loan to cover the cost of the following:
| General Maintenance Costs – Oil, coolant, and other fluid changes – New batteries – Seasonal tire changes and rustproofing – Muffler patching and replacement – Timing belt/chain replacement | Cosmetic Improvements – New or custom paint jobs – Tinted windows – New seats – Rust, dent, and scratch removal – Custom additions (spoilers, rims, spokes, etc) |
| Overall Safety Improvement – Head, tail, tag, and interior light repairs – New brake pads and discs, or other related repairs – New airbags, seatbelts, and other safety features – New suspension, transmission | Accident and Damage Repairs Cracked/broken windshield or other windows – Fender and bumper replacements – Front and side airbag replacement – General bodywork |
Types Of Cars Covered Under Auto Repair Loans
You can use car repair loans to finance repairs for almost any kind of vehicle, such as:
- Cars
- Trucks
- SUVs
- Motorhomes, trailers, and recreational vehicles
- Trucks and oversized vans
- Motorcycles, dirtbikes, and other all-terrain vehicles
- Boats and jet-skis
- Tractors and other heavy labour vehicles
- Skidoos and other winter vehicles
Things To Consider When Financing Your Car Repairs
As beneficial as car repair loans can be, they need to be handled responsibly if you want to avoid racking up more debt than you can handle. So, before you apply, consider asking yourself the following questions:
- How much is the car itself worth?
- Should I take the vehicle to be evaluated before I apply for a loan?
- How old is the car?
- How many kilometers does the car have on the odometer?
- What is the total cost of the current repair or maintenance needs?
- Are these procedures going to be recurring problems?
- Is it more logical or affordable for me to just purchase a new car?
- Will the cost of this repair loan fit into my budget, and can my income support it?
The answers to these questions will not only tell you what you may be able to afford in a car repair loan, but if you should even apply for one in the first place.
What Happens If Your Car Is Totalled?
If your car is totalled — whether from a collision, natural disaster, or vandalism — your insurance policy should provide you with coverage. The car may be considered totalled if the costs to repair the vehicle exceed its actual cash value (ACV).
To determine this, your insurance provider will send out an adjuster to inspect your vehicle. If your vehicle is deemed a total loss, your insurance company may offer you a settlement. The amount of the payout you receive is based on the ACV prior to the incident.
If you have a car loan, the payout will go to the lender. If the settlement amount is not enough to cover the loan balance, you’ll need to come up with the difference yourself, unless you have gap insurance. Otherwise, you can use the settlement funds to replace your vehicle.
Learn more: What To Do When Your Car Is Totalled?
Should You Repair Your Car Or Buy A New One?
The decision to spend money on car repairs versus getting rid of your car and replacing it with a new one requires careful consideration.
| When To Repair Your Car | When To Buy A New Car |
| Your car is not very old | Your car is nearing the ends of its life |
| The repairs are minor | The repairs are extensive |
| The cost of repairs is relatively low (less than half of the car’s value) | The cost of repairs is very high (more than half of the car’s value) |
| Repairs may add years to the life of your car | Repairs will do little to extend the life of your car |
| Your car has good fuel economy | Your car is a gas guzzler |
| You plan to keep your car for the long haul | You plan to get rid of your car in the near future |
Learn more: Should I Repair My Car Or Buy a New One?
Final Thoughts
Auto repair and maintenance financing can be a lifesaver when unexpected expenses arise. Depending on your exact needs, a variety of financing options may be available. Before taking out a loan, be sure to compare financing rates and terms, and plan ahead with preventative maintenance services to minimize major issues with your car in the future.
Auto Repair Loan FAQs
Can I get a loan to cover the cost of mechanic work?
Can I get a car repair loan with poor credit?
Can I finance my car repair?
Should I use a credit card to cover my car repair?
Is it worth repairing my car?
Can I finance my car repair through my auto repair shop?
®Fairstone Financial Inc. is a wholly owned subsidiary of Fairstone Bank of Canada.
*Interest rates are subject to change. Actual Annual Percentage Rate (APR) varies based on the province of residence and individual factors like credit details and loan amount. The interest rate on an unsecured personal loan is 31.99% in BC.
†On approved credit. Terms and conditions apply. Interest rates vary by province/territory and from customer to customer based on factors like credit score and borrowing history. See Fairstone’s website for details.
Fairstone Financial Inc. holds high-cost credit licenses in AB, MB (License #85047, expiring 20-02-2026) and QC; it has applied for a high-cost credit grantor license in NL. For license information by province, visit Fairstone.ca/HCCG
In Ontario, Fairstone Financial Inc. is licensed as mortgage brokerage 10821.
In Nova Scotia, Fairstone Financial Inc. is licensed as mortgage lender #2021-3000028.
