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Part of the challenge of owning a car is dealing with unexpected auto repairs. You cannot avoid maintenance and repair costs if you have a car. However, you can anticipate when you need preventive maintenance and how much it will cost.
To prepare for unforeseen car repairs, you can secure an extended auto warranty but do your research first. Look up the most recommended car warranty providers, check out customer feedback like Protect My Car reviews, or ask your friends about their trusted providers.
Getting an extended auto warranty is one of the ways to fund unexpected car repairs. Let’s learn more about this type of auto warranty and check out other options and see if you can nail down which works best for you.
An American Automobile Association (AAA) survey revealed that common repairs cost an average of $500 to $600. AAA recommends that car owners save at least $50 monthly to build an emergency fund for routine maintenance and emergency repairs. Even if the fund is not enough to pay for the entire repair bill, it would still help lower the amount you need to finance through other means.
Extended Auto Warranty
When you buy a new car from a manufacturer or a dealer, it will come with a manufacturer’s warranty that lasts for about three years on average. You may also avail of an extended auto warranty as an optional vehicle service contract. It will kick in once the original coverage ends.
This warranty helps car owners avoid potential out-of-pocket costs in case of unexpected repairs. It may also cover repair costs for car parts that an active original contract doesn’t usually include, such as onboard computers and entertainment systems.
Furthermore, it can cover expenses when the manufacturer’s coverage requires a deductible that you need to settle first before it applies. Sometimes, providers limit specific costs, such as towing services. An extended car warranty will cover these costs if included in the contract.
Mechanical Breakdown Insurance
Another way to fund unexpected repairs is through mechanical breakdown insurance (MBI). This type of insurance covers repairs that regular car insurance wouldn’t usually cover. The car insurance provider pays for repairs resulting from an accident. However, it won’t cover repair costs if your car suddenly stops working in the middle of the road while you’re driving.
MBI is what you need for situations like these. It provides coverage for electrical systems, brakes, timing gears, transmissions, and other vital components. However, this type of insurance does not cover wear and tear and maintenance costs. It’s also not available for every car and is only applicable to new cars or those that haven’t exceeded a certain mileage.
If you don’t have an emergency fund and you failed to secure an extended auto warranty or MBI before your car broke down, you have the option to use your credit card to pay for the repairs.
However, make sure that you have the means to pay off your credit card balance. You don’t want to face a worse financial challenge from fees and interests. If you have multiple cards, ensure that you’re using the one with the lowest annual percentage rate. Resist the urge to use the card for other expenses while you’re still paying off your repair debt.
Applying for a personal loan will enable you to pay for the entire repair costs while spreading out your payments to the lender over time. Find a lender that releases funds quickly so you can take your car to the repair shop as soon as possible.
Some can transfer the funds to you the same day or the next business day. Take note of your loan details, including the fees, interest rates, and repayment terms, so you can avoid penalties that could further increase your expenses.
Borrowing Money From Friends or Family
Use this method as your last resort if any of the ways mentioned do not work for you. Although it may be highly uncomfortable to borrow money from a loved one, there may be someone who can help you fill the gap between how much you have and how much the repair costs.
What to Avoid
While the above ways are some of the recommended methods for funding unexpected repairs, there are other options that you shouldn’t even consider taking. These options are title loans and payday loans.
A title loan is a type of short-term financing where you use your car as collateral by signing over your car title to the lending company. It’s a single-payment loan that can have an annual percentage rate (APR) of around 300%. A Consumer Financial Protection Bureau (CFPB) report indicated that four out of five auto title loans are renewed at the due date because borrowers can’t afford to make the payment.
Meanwhile, a payday loan is another short-term loan that’s due on your next payday. Payday loan’s APR can reach up to 400%, excluding fees. But unlike title loans, these loans are unsecured, meaning no collateral is required. You should still stay away from this type of loan because of its extremely high interest rates.
Whichever method you choose to fund emergency car repairs, the end goal is to fix your car as soon as possible. The lesson is to be more prepared the next time the unexpected happens. Having a plan for funding car emergencies could give you financial security and peace of mind.
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