Can You Finance a New Engine for Your Car?

Unexpected car trouble, such as a failing engine, can cost up to $10,000 for replacement, depending on the vehicle’s make and model. Financing a new engine is a common solution, allowing vehicle owners to get their vehicle back on the road.

Understanding Your Financing Options

When facing an expensive engine replacement, several financing avenues exist to help manage the cost. Each option comes with its own set of characteristics regarding accessibility, interest rates, and repayment terms.

Personal loans are a flexible option, typically unsecured, requiring no collateral. These loans can be used for unexpected car repairs and usually come with fixed interest rates and repayment terms ranging from 24 to 72 months. Annual Percentage Rates (APRs) for personal loans can range from 7.90% to 35.99%, with lower rates generally available to borrowers with strong credit scores.

Specialized auto repair loans are another avenue, offered directly by lenders or through repair shops. These loans are specifically designed for vehicle repairs and may offer terms tailored to such expenses. Some financing platforms offer pre-approval processes that do not impact your credit score initially.

Credit cards can serve as an immediate solution for smaller or urgent repairs, offering quick access to funds. However, credit cards often carry higher interest rates compared to other loan types, with average APRs for accounts accruing interest ranging from 21.16% to 24.35% as of mid-2025. If the balance cannot be paid off quickly, these high rates can significantly increase the total cost of the repair.

Some dealerships and independent repair shops offer their own financing plans or work with third-party lenders. These in-house financing programs can be convenient, sometimes featuring promotional interest rates or deferred payment periods. It is advisable to inquire about such options directly with the service center.

Home equity loans or Home Equity Lines of Credit (HELOCs) are options for homeowners with substantial equity in their property. These are secured loans, meaning your home serves as collateral, which often results in lower interest rates than unsecured personal loans. Home equity loan rates as of August 2025 averaged between 8.25% and 8.41% for 5-year to 15-year terms, while HELOC rates averaged around 8.26%. However, approval can take several weeks, and defaulting on these loans puts your home at risk of foreclosure.

Preparing Your Application

Before submitting any financing application, gather the necessary documentation and understand your financial standing. This preparation streamlines the process and can improve your chances of approval.

Begin by obtaining detailed repair quotes for the engine replacement from several reputable mechanics or dealerships. Each quote should be itemized, detailing costs for parts, labor, and warranties. Multiple quotes allow you to compare prices and demonstrate thorough research to lenders.

Next, assess your creditworthiness by checking your credit score and obtaining a copy of your credit report from one of the three major credit bureaus (Equifax, Experian, or TransUnion). Lenders use your credit score to gauge your financial reliability and determine the interest rate and terms of a loan. A FICO score of 670 or higher is considered good and can lead to more favorable loan offers.

Gather your personal financial documentation. This typically includes proof of income, such as recent pay stubs or tax returns for the past two years. Lenders may also request bank statements from the last three months to verify your ability to repay.

You will also need to provide proof of identity, such as a driver’s license or state-issued ID, and proof of address, like a utility bill or lease. For home equity financing, additional documents like your most recent mortgage statement and homeowner’s insurance policy will be required. Understanding your budget is important; calculate how much you can afford to pay back each month to ensure the loan payments are sustainable within your financial plan.

Navigating the Application and Approval Process

Once all your information and documents are prepared, the next phase involves submitting your application. The process moves from submission to fund disbursement.

Applications for personal loans or auto repair financing can typically be submitted through online portals, directly at a bank or credit union, or through the repair shop. Online applications often provide quick pre-approval decisions without initially affecting your credit score.

After submission, you can expect an initial review by the lender, who will verify the information provided. Lenders may contact you to request additional documentation or clarification on certain financial details. This review period can vary, but some personal loans are funded within 24 hours of approval.

Upon approval, you will receive a loan agreement outlining the terms, including the Annual Percentage Rate (APR), repayment schedule, and any associated fees. Carefully reviewing and understanding this agreement before signing is important. Funds are typically disbursed directly to the repair shop or deposited into your bank account, depending on the lender and loan type.

If an application is denied, the lender is required by federal law to provide a denial letter explaining the reasons for the decision. This letter can help you understand areas for improvement, such as addressing credit history issues or debt-to-income ratios, before reapplying or seeking other financing options.

Important Factors for Your Decision

When evaluating financing offers for your new engine, several factors beyond the simple monthly payment amount require careful consideration. These elements collectively determine the true cost of borrowing and the long-term impact on your financial health.

The Annual Percentage Rate (APR) is a comprehensive measure of the cost of borrowing, encompassing both the interest rate and certain fees. A lower APR directly translates to less money paid over the life of the loan. For instance, personal loan APRs can range significantly, from around 7.90% for borrowers with excellent credit to over 35% for those with lower scores.

The loan term, or the length of the repayment period, also significantly impacts your monthly payments and the total interest paid. A shorter term typically means higher monthly payments but less total interest, while a longer term offers lower monthly payments but accrues more interest over time. For example, a 36-month personal loan of $17,413 at a 12.49% interest rate with a 6.00% origination fee could result in 36 monthly payments of $582.

Consider the total cost of borrowing, which includes the principal amount, all accrued interest, and any fees. Fees can include origination fees, which are one-time charges for processing the loan, typically ranging from 0.5% to 8% of the loan amount. Other common fees are late payment fees, which can be a flat amount (e.g., $10-$30) or a percentage of the overdue payment (e.g., 1.5%-15%), and sometimes prepayment penalties if you pay off the loan ahead of schedule.

Taking out a new loan and making timely payments affects your credit score. Consistent on-time payments can improve your credit history, while missed payments can negatively impact it, potentially making future borrowing more expensive. Some lenders also offer repayment flexibility, such as the option for early repayment without penalty or, in limited cases, the possibility of payment deferment, which can provide financial relief during unexpected hardships.