How to Avoid Using a Payday Loan for Auto Repairs

Inside Subprime: Feb 6, 2019

By Lindsay Frankel

For most people, reliable access to transportation is essential for maintaining a job. According to data from the U.S. Census Bureau, about 85.4 percent of workers commute to work in an automobile. And while the rate is lower in major cities due to more options for getting around, many Americans still don’t have access to public transportation.

If your car breaks down, the financial burden is twofold. Repairs can be costly, and 40 percent of Americans don’t have $400 saved to cover an emergency expense. And if you can’t access your vehicle to get to work, you’ll miss out on that needed income as well. It’s common for people with bad credit to turn to payday loans to cover auto repairs. These short-term, small-dollar loans are quick and easy to obtain, but they carry high interest rates and fees that most borrowers can’t afford, according to research from Pew Charitable Trusts. If you need your car repaired but are strapped for cash, consider all other options before taking out a risky payday loan.

Apply for government assistance

The Department of Health & Human Services in each state offers assistance to low-income families for a variety of needs. Only a few states provide car repair assistance, but other programs can help defray costs that will help you save more of your income for an emergency. Check your eligibility for healthcare assistance, food assistance, and housing assistance at your local office or state’s website.

Ask family or friends for help

It can be difficult to ask for help, but getting financial assistance from a friend or family member will likely be the quickest option that’s feasible for you to pay back. Explain your situation and why you need the money. If you ask respectfully and demonstrate a repayment plan, you might be surprised to find people willing to assist you, especially in the case of an emergency.

Contact a charitable organization

There are many local and national nonprofit organizations that assist low-income families with low-interest loans and grants for car purchase or repair, and some that even donate free cars. The following resources may help:

Take out a lower-cost loan

If you can’t get a low-cost loan or charitable grant, consider other options that are less costly than payday loans. You can try applying for a credit card or talking to local banks or credit unions about low-interest loan options. If you have bad credit and can’t access these alternatives, consider taking out an installment loan to cover your auto repair. These loans have longer terms and lower interest rates than payday loans. Installment loans also help you build credit, so you can explore cheaper options for borrowing in the future. Once your car is fixed and you’re back to work, set up a budget and savings plan or secure additional income to prepare for future emergencies.

For more information on payday loans, scams, and cash advances and check out our city and state financial guides including FloridaIndiana, Illinois, KansasKentucky, MissouriOhio, Texas and more.