Here’s Why You Should NOT Use Payday Loans For Car Repairs

1 in 5 UK drivers admit to driving unsafe cars because they can’t afford the repair bill and a quarter of drivers aged 17 to 24 say they put off repairs to avoid extra costs. This results in many dangerous vehicles on the road and a higher likelihood of accidents.

Repairing your car is critical. To help manage the costs, a significant proportion of drivers use payday loans to cover car expenses. However, this isn’t always the best solution either.

In this article, we’re exploring why payday loans aren’t always the best idea for car costs with honest advice and unbiased information.

What are payday loans?

Before we discuss the pros and cons of payday loans, we’ll quickly provide an overview of what they are.

A payday loan is a short-term, unsecured loan that often comes with high-interest rates. These are also known as salary loans, payroll loans, payday advances, or cash advance loans.

Payday loans are usually available for £500 or less and are a popular option for those with lower credit scores. But they’re not your only option.

Benefits and drawbacks of payday loans

It’s vital to be informed before applying for any type of loan. Here are the transparent benefits and drawbacks of payday loans for car repairs.

Benefits of payday loans

• Payday loans are accessible for those with lower credit

• You can get approved and access the money very quickly

• Payday loans can be used for a range of expenses - including car repairs

Drawbacks of payday loans

• Payday loans have extremely high interest rates and are an expensive form of borrowing

• Payday loans often have short repayment terms, and if you can’t repay, you’re subject to high fees

• Can negatively impact your credit score

• Can trap borrowers in a cycle of debt due to high fees and interest rates

Alternatives to payday loans for car repairs

Realising your car needs urgent repair is stressful. Before you sign up for a payday loan, consider alternative options and assess how they’ll affect your finances.

Alternative payment options for car repairs include:

• Borrowing money from family and friends can help you avoid interest charges and fees, but it requires trust and loved ones with enough cash. In some cases, it can strain the relationship.

• Emergency savings — If you have an emergency fund, use it to cover your car repairs.

• Payment plans with the garage — Some garages are happy to negotiate plans that take the strain off big payments.

• Interest-free finance — Interest-free finance providers (like Bumper) help take the strain off car payments with 0% interest payment plans. This is a much better option if you want to avoid payday loan fees. See how it works here.

Payday loans vs Bumper’s interest-free finance: A comparison

10% of payday loans are used for car or vehicle expenses, but they often have large interest rates. Typical interest rates work out to be 1,300% APR.

In fact, one company we found offering payday loans for car repairs estimated a 6-month £2,000 loan would cost £3273.94, including interest. This is too expensive for most UK drivers.

The real expense of payday loans

Companies offering payday loans tend to prey on those with poorer credit scores.

‘Payday loans for bad credit’ is a phrase that appears frequently when searching online. This may seem appealing if you have a low credit score, but you’ll likely be charged a much higher interest rate.

Finder.com reported that the average payday loan user is younger, between the ages of 25 and 30, single, in rented accommodation, and on a low income, with a household income of less than £1,500 per month. 61% of these users admitted to feeling less confident about managing money.

Payday loans may seem like a quick solution to your car repair problems but could leave you with large amounts of interest to pay and your credit score negatively impacted (if you’re unable to make the repayments).

Why interest-free loans are more sustainable than payday loans

Bumper’s interest-free, buy now pay later loans for car repairs keep things simple.

They have a 0% APR, meaning what you borrow is exactly what you pay. The garage covers the lender's cost in the form of a small percentage charge, so there is no need to worry about depositing extra cash to cover the interest.

Bumper’s use of soft credit checks and risk management systems uses artificial intelligence to make lending decisions based on previous loans, meaning we can lend responsibly and not push customers into debt.

It also ensures we can lend to many people. Our average acceptance rate is 95%.

Participating garages offer interest-free loans. Our' find a garage' tool allows you to find local garages using your postcode.

Payday loans - The takeaway

There’s no one-size-fits-all answer to car financing. However, it’s important to understand that payday loans aren’t always as friendly as they seem. Hopefully, this blog has helped you understand how payday loans work and encouraged you to conduct your own research before choosing one car repair financing method.

How Bumper can help

Bumper helps you spread the cost of any repairs at no extra cost. With 0% interest and the chance to split bills of up to £5,000, we’re here to help when your car goes wrong. We also offer quick online pre-approvals, allowing you to skip the paperwork and access help whenever needed.

Apply for a credit limit and find a reliable service partner today.

Author - Joseph Law

Josephhas been writing about cars for over seven years and writing for Bumper for over two, blending his passion for automobiles with a talent for storytelling.

Joseph has written about engineering and cars for Autozilla, Komaspec, and several engineering manufacturers. When he's not writing or tinkering with one of his five cars, Joseph dreams of owning an Alfa Romeo 33 Stradale.