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Can I Use a Personal Loan to Upgrade My Car?


If your car is prone to repairs, it can be a drain on your wallet.

Even when you get the recommended routine maintenance and take good care of your car, you could still wind up with a repair that might cost thousands of dollars. Many people consider their vehicles as a major lifeline, so it can be disastrous when it breaks down.

A report from AAA suggests that the average car owner will spend around $9,200 per year on their vehicle (when they drive around 15,000 miles a year). That significant number includes the cost of gas, insurance, and repairs.

Suppose you find yourself in a position where you’re stuck with a vehicle that you need to get to work and a repair worth thousands of dollars.

In that case, there are some personal loan options available if you don’t have the money on hand.

Is a Secured or Unsecured Auto Loan Better?

Financial experts suggest that an unsecured loan is the way to go if you have the credit score to do so when it comes to auto loan repair and upgrades.

Secured loans are a bit riskier, as they are typically title loans. You can lose your vehicle if you’re unable to make the payment on time.

Unsecured loans may come with some extra steps, but they can be a lot more manageable. Also, your payments will likely be lower than a 30-day title loan.

Loan Options Available for Auto Repair or Upgrades

While these options are typically dependant on your credit score and employment status, there are several loan options to choose from. 

Personal Loan

A personal loan from your financial institution typically can be used for almost any purpose, including vehicles and vehicle repairs. If you opt for a personal loan secured by your vehicle, it’s considered an auto equity loan.

The auto equity loan uses your vehicle as collateral. It doesn’t require a credit check, so it’s appealing to those who may have bad or no credit. These loans can be very expensive, and they are short-term, so you run the risk of losing your vehicle if you can’t pay it back on time.

Unsecured personal loans are based on your credit score and having a job so you can make your payments each month. The better your credit, the better your interest rate.

Credit Cards

If you don’t have the credit to get a personal loan and you have a credit card, you may want to consider using it to cover the cost of your repair if you’re in a pinch. Interest rates can be comparable between loans and credit cards.

If you don’t have a credit card, but you think you’ll be approved for one, you can apply. However, the application process takes some time.

Many brand new credit cards have promotions that you can take advantage of to avoid paying interest on your car repair—if you pay it off before the promo period ends.

Payday Loans

Another appealing option for those with bad or no credit is a payday loan. Payday loans are a short-term loan that is paid back on your next payday.

Typically, you can only borrow up to $1,000 and $2,000, depending on your income, so if your car repair isn’t overly expensive, this might be a good option.

However, be aware that payday loan interest rates are astronomical and can put you into a cycle of paying back and borrowing every payday.

What Should I Look for in a Personal Loan Used for an Auto Repair?

Monthly payment

You want to ensure you can make the payments each month before taking a personal loan of any kind.

Working out your budget to see what you can afford before going into your financial institution allows you to continue living comfortably without putting yourself in a bad situation.

Term Length

You’ll likely have plenty of options when it comes to how long you’ll be able to borrow. The longer the term, the more interest you pay, but the lower your payments.


Working out your monthly payment in your budget can help you determine the amount you’ll need. You should borrow the exact amount that you need and not any more than that.

Terms and Conditions

Knowing all the terms, conditions, fees, and penalties before you sign the paperwork is essential.

In addition, you should know if you can pay your loan early without penalty, the process of making extra payments, what the process is if you miss a payment, and any other questions you may have.

Annual Percentage Rate (APR)

Knowing the percentage rate will help you determine how much you’ll end up paying for the loan when everything is said and done.

What Can I Do If I Don’t Have Any Credit?

While it’s very possible to get an auto repair loan without any credit, you will likely end up paying much more for it.

Not everyone has an emergency fund or family and friends that they can borrow from—read more here.

So, when you are desperate, there are some options you can consider.

  • An installment loan is slightly different than a payday loan or title loan and less risky. Depending on the lender, you may get some positive results on your credit score if you make your payments on time.
  • An installment loan works similarly to a personal loan from your bank. You select the amount you want and make payments on your paydays.

Many online lenders will offer loans up to $4,000, verify your income and bank account, and give you the funds. The APR will differ by state but can be up to 160% per year.

What Happens If I’m Unable To Repay My Loan?

Life happens, and sometimes payments need to be missed. It’s recommended that you always ensure that you pay your bills, but sometimes it’s out of your control entirely.

If you need to miss a payment, it’s best to let your lender know as soon as you know—before the payment date if possible.

Giving the company plenty of notice can help them make arrangements with you or even adjust your payment date. This will help you avoid a negative impact on your credit score.

If you’ve opted for a title loan, you must make your payment on time—see more here for the best title loans.

Otherwise, you’ll have your vehicle repossessed. Depending on the lender, you may be able to ask for an extension or reloan. But, that is dependent on the company you’ve chosen to work with.

If you’ve taken a payday loan and need to miss a payment, you’ll often go into collections with the company. They also can resubmit the payment for your next payday automatically, without you agreeing.


Personal loans can be used for car repairs and upgrades. There are plenty of loan options, from bank loans to no-credit options as well.

Suppose you’re unable to borrow money to cover the payment cost or you can’t pick up extra hours at work. Reworking your budget to include an emergency fund is ideal to avoid situations like this in the future.

Not everyone can put a lot of money away each paycheck for emergencies. Still, every dollar counts and will help in the future.