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Paying for Repairs & Maintenance
The problem with owning and buying cars (also applies to houses, appliances, etc)... is that they break down. Whether the car is new or used, there will be repairs eventually. Even paying for maintenance (tires, oil changes, timing belts, water pumps, etc.) can be costly.
So how are you paying for all of those repairs?
The Best Option: Cash
In a perfect world you would be that you have a significant savings, and you pay cash for all of these things. It's not as hard as it sounds. Just don't act like the costs above are a surprise. They WILL come up, just plan on that now.
Start making payments of any amount toward those costs now, into a savings account labeled "Car Fund". Whether you pay $5, $25, or $100 per month into the Car Fund, you will be prepared for most repairs before they come up.
Repair Insurance: Service Warranties
What many people realize is that they have failed to save in the past (for whatever reason) and may fail to do so in the future. These people opt to pre-pay for potential repairs. The primary difference between "Insurance" and "Warranty" is that Insurance is typically paid for monthly, and a warranty is a one time purchase of a specific amount of money, for a specific amount of potential reward.
As with any insurance company the corporation you purchase the warranty from is betting you wont' need it or use it. You will pay $X dollars betting they will pay $X+, they are betting they will pay $X-.
The average cost of a Service Warranty purchased as an Aftermarket Product from an auto dealership will be between $1,500 - $3,000. They are hoping that the total cost of any repairs they pay for you will not be more than that.
You should check to see what the lifetime payout cap is, if you buy a Service Warranty for $3,000, but the company will only pay $4,000 over the life of the warranty, you did not benefit from the purchase.
There are many exclusions often included with a warranty.
Most are "Powertrain" only. The Powertrain is your Engine and Transmission (internal components only). That means something inside the device has to break before you are covered. Items attached (alternator, air conditioner) do not count, and are not covered.
You could get Bumper to Bumper, but even then you need to read the list of items covered. They may cover the break calipers in case of breakage, but not brake pads or rotors.
No two warranties are the same, read, read, read, read them before you buy. Do not be surprised when you pay for $3,000 Service Warranty and then have a repair cost is does not cover (which is common).
- Manufacturer Warranties
A Manufacturer Warranty typically covers most major components for the first number of miles and years. One of the best I've ever seen was Hyundai, who claimed a 100,000 miles/ 10 year warranty. But Last I heard it was non-transferable. That means, if you buy the car used at 5 years, you don't get the other five. You have to be the original new owner to use their warranty. Other's are transferable, so do your research.
- Tire and Wheel
This essentially covers tire rotations, tires replacements, and even wheel replacements for a number of years, miles, or both. This can be a good coverage, but Discount Tires offers an equal protection for far less on their new tires.
- Windshield Repair
This replaces your windshield if you have damage. Honestly, this is kind of a waste of money. If you have full coverage insurance, which I do even on my $2,000 cash cars, windshield replacement is usually built in. When it's not, it's available as a rider for cheap. Just get this through your insurance company.
- Care Programs
This one is interesting. Think "Oil Changes", but it can encompass more. Imagine you could just pre-buy all your oil changes for five years. That's a weight off the shoulders of people living from day to day, with little savings.
With any of these additional programs you purchase, you are adding a balance to your loan (assuming you are financing the car). ANY balance you add, will cost you interest on that balance over time. So you are not just paying $3,000 for a service warranty, or $800 for Care Program, you are paying interest on that over five years (or your term) also.
Therefore, as I said in the start, it's better that you run the Dave Ramsey plan and pay cash. Save for expenses. See my STORE for suggestions on books from Dave Ramsey.
The Insider is a BIG fan of Dave Ramsey:
- Go read/listen/watch Dave Ramsey and he'll teach you how to do it right!
- Listen to The Dave Ramsey Show (HERE)
- Or by his most popular book: (HERE) The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness