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Emergency Car Repairs Can Affect Anyone

Having a car is a necessity for many people so they can get things done like going to work, running errands, and getting the kids to school. When accidents or the need for car repairs happen people can find themselves with expensive repair bills that they cannot pay outright. Many turn to payday lenders to cover the cash shortfall so that they can get their vehicle back on the road and pay it back a couple of weeks later. Even though you might have great insurance, deductibles of $200, $500, $1,000 or $2.000 (from $200 to $2000) are quite common. Typical car repairs can cost anywhere from $100 to $10,000.

When credit cards are maxed and  banks won’t extend any more credit, many turn to payday loans. In these difficult times payday loans can look tempting, but are they really the best solution? If you have bad credit you may think that a payday loan is your only option, but you can also apply for a car repair loan which may be the better choice for you.

Let’s start by discussing the most common type of loan that people look for when they want to repair their car, payday loans.

Payday Loans

The most popular high risk lending is known as payday loans. In fact, up to 45 percent of Canadians who apply for a payday loan will use the funds to cover unexpected and emergency expenses such as car repairs. (1) Although these loans can be helpful in covering these types of situations, borrowers should make sure that they do their homework before they get involved with these sorts of lenders.

Short term means that they are expected to be repaid within 2 to 4 weeks from the date the lending. A specific due date is set in the payday loan agreement that usually falls on the borrower’s next payday. Lenders usually provide the loan by cash, check, electronic deposit, or prepaid debit card. Payment of the loan is similarly done with a voided check or a pre-authorized debit from the borrower’s bank account, credit union, or prepaid card for the full balance plus fees.

Payday lenders often target vulnerable consumers who have bad credit who cannot get access to credit. 90 day background credit checks are necessary before payday lenders will even offer a loan. Often, they are unconcerned about a borrower’s debt-to-income (DTI) ratio which could result in leaving them overextended and unable to repay the loan on time. This can leave borrowers stuck in a debt trap. Some payday lenders can be predatory in their practices by exploiting borrower’s needs for immediate repairs and imposing unfair loan terms on them. If a loan is not paid back by the agreed date then borrowers will likely be required to pay additional fees and more interest charges which increases rather than reduces a borrower’s debt. Many payday lenders will aggressively attempt to collect on defaulted loans using third party collections companies which could affect a borrower’s credit score making it more difficult for them to obtain loans in the future. As well, some will resort to taking court action against a defaulted borrower which could result in court summons and garnished wages. (2)

Payday loan fees can range anywhere from 10 to 30 percent. Borrowers need to pay attention to any additional fees that a payday lender may charge, especially if they might default on repayments. Even on a short term 2 week loan with a 15 percent fee, borrowers are paying annual percentage rates (APRs) close to 400 percent! At these high interest rates borrowers who default repayments can end up caught owing much more than they had anticipated. Payday loans can be an extremely expensive way to borrow money and could lead to serious financial problems for those who use them for anything but emergencies or budgetary shortfalls.


Car Repair Loans

Seeking out a secured car repair loan with the value of your car is another option for borrowers. Even though you might have bad credit, car repair loan companies can offer more affordable repayment plans. Unlike payday lenders, secured car repair loans require no 90 day background credit checks, as the vehicle is most often used as collateral. (4) Having your car as collateral for the loan also means that the interest rates will be a fraction of what payday lenders offer. The interest rates of some top car repair loan companies are on par with rates offered by credit card companies. Auto mechanic and repair shops are usually partnered with car repair loan companies so borrowers can work directly through their mechanics and technicians to get financing set up.

Here are the summary differences to compare when deciding what loan type is best for you.

Payday loans

  • High interest as high as 400%
  • Short term typically 1-4 months
  • Range from $500 to $1500
  • 90 day bank statements
  • Approvals can take up to 12 hours
  • Bad credit accepted
  • Credit bureau R9 mark on file
  • Requires ID and voided cheque

Car Repair Loans

  • Comparable to credit card rates
  • Up to 3 years
  • Loan amounts can be as high as $10,000
  • No 90 day bank statements
  • Approval within minutes
  • Bad credit accepted
  • Car as collateral
  • Requires ID, car info and voided cheque



When using emergency alternative loans, borrowers need to look at more than just the rates. When choosing a lender borrowers need to know who they are getting involved with and what specifics are of the loan agreement they are agreeing to. Some payday lenders do not disclose their full company details and many avoid discussing additional fees associated with default payments so it is up to the borrower to be aware of a lender’s interest rates and total fees for a loan.

In taking a secured car repair loan, borrowers can be guaranteed to get much lower rates, longer terms, less paper work, faster loan approvals and the option to borrow higher amounts. With all these facts laid out, the obvious, and quite frankly, smarter choice, for borrowers is a secured car repair loan.