How To Prepare For And Handle Auto Repair Emergencies
It's important to be ready financially after purchasing a car. Learn how you can prepare your finances to handle any auto emergency that may occur.
The expense of car ownership extends far beyond auto loan payments and auto insurance premiums. There are the minor car repairs and regular maintenance costs, like new tires and oil changes, which you probably already include in your budget. And then there are the big ones. If you take your car in and find out you have to replace your oxygen sensors, ignition coil and spark plug, or catalytic converter, you are looking at hundreds of dollars that you haven’t planned for. Timing belt replacement? From $500 to $950. And if your transmission fails—it could cost $1,500 to $3,000!
Without an emergency savings fund, you may have to figure out how to pay for car repairs with no money on hand. The average cost of a car repair in the U.S. is $305.56. What can you do to be financially prepared so you can handle whatever auto emergencies life may bring?
Why You Should Have An Emergency Savings Fund
The best way to prepare for an auto emergency is to have a dedicated savings fund. Building up a safety net will allow you to avoid taking on more debt with auto repair loans.
Wondering how much you should save for an emergency fund? There is no one perfect emergency fund sum to aim for because different people will have different financial needs. What you should do is aim to have at least one to three months of your typical monthly income set aside. However, any money you have saved can make a difference when paying for repairs.
Personal finance tip: make sure your emergency fund is liquid. You want to keep your savings in a savings account where it is readily accessible rather than stocks, CDs, or other investments.
What To Watch Out For With Loans For Auto Repairs
Have an auto emergency without an emergency fund saved? You may have to use credit to cover the costs or be without a vehicle!
Using a credit card is a financially savvy move. Purchasing repair services on your credit card provides a proof of payment, and if the mechanic did not perform a service you paid for, you can use the resolution services your credit card offers to work out the disagreement.
Create a plan of how you will pay down your balance quickly. For example, you can reduce your entertainment budget by a certain amount each month and use the money to pay off your balance. By paying the principle balance off fast you will likely incur less interest charges and benefit from building your credit with on-time payments.
With an auto repair loan you’ll have to apply for credit, which will mean a hard pull of your credit file. Keep in mind, that hard credit inquiries may lower your credit score.
Are Extended Car Warranties Worth It?
Warranties are intended to serve as an insurance policy for your vehicle. In the case of unforeseen or unwanted repairs or maintenance, your warranty may cover the costs for a set time period and up until a certain number of miles.
When you purchase a new car, your vehicle comes with an original warranty but you also have the option of purchasing an extended car warranty. A used car may still have some time left on the original warranty, depending on how old it is and how many miles it has.
An extended warranty is also known as a vehicle service contract. They will cost extra, usually from several hundred to $1,000, where original warranties are already built into the original purchase price. You may not need to purchase one, especially if it is similar to the manufacturer’s warranty. In general, newer cars don’t require a lot of repairs. Most of the emergency and expensive car trouble issues will pop up long after your original or extended warranty has ceased. These contracts are designed to safeguard you against untimely surprise expenses, not necessarily the typical repair and maintenance costs that come with car ownership.
Also, keep in mind, some auto service contracts will include exclusions such as brake repairs, towing expenses, alignments, and tune-ups. This means you may not have much opportunity to use your warranty anyway. What you can do to make a better-informed decision is to learn about common issues your car has. Then see if repairs for that problem are covered under the particular service contract.
If you don’t purchase a warranty, you can always put the money you would have spent into your emergency savings fund to pay for those future auto repairs!