Are extended car warranties worth it?

Are extended car warranties worth it?

Extended car warranties

You’ve heard of warranties, right? They usually come with the product that you purchase as a guarantee that the manufacturer promises to repair or replace anything for a specific amount of time. However, extended car warranties are a bit different because they’re not included in the price of the car. You have to buy it on your own, and simply put, it’s a type of insurance policy. Ultimately, it’s your call on whether or not to buy this when you get a car. We’re not here to tell you that you should or should not buy an extended car warranty. What we really want is for you to make your own decision based on the pros and cons of an extended auto warranty.

Benefits

  1. You’ll have a peace of mind. Good car warranties will provide you with towing services, money for a hotel, food, and a rental car. Experiencing a car breakdown is stressful enough, so some people purchase extended warranties for the comfort of knowing that they’re all covered.
  2. You’re guaranteed the right parts specifically for your car. Not to mention, you’ll have an easier time getting the parts and not have to wait several days for the right parts to come in at a dealership compared to a small auto repair shop.
  3. It can pay for itself after one substantial repair. This is probably one of the biggest selling factors of extended warranties. Cars are getting more complex. On top of the mechanical issues that can go wrong, we also have to consider the software built in newer vehicles. Those darn computers in our cars are so expensive to fix!
  4. It can increase the resale value. The older the vehicle, the more valuable the policy becomes. Also, the person buying the car from you will know that the car you’re selling has been well-maintained and care for, which will make it far easier to sell at the price you want.

Risks

  1. Your monthly payments will cost more. This is a major reason why many drivers today will reject extended warranties. It’s financed into your auto loans, so you’ll be paying more every month.
  2. They can cost more than they’re worth. It’s a type of car insurance after all. You may or may not use your warranty for the specific amount of time given. You might even forget that you have it.
  3. Your existing (mandatory) car insurance might already cover what the extended warranty covers. In this case, it’s a waste of money. There’s no need for double coverage on anything.
  4. They don’t cover everything that could go wrong. You’ll need to read the fine print very carefully to see what it includes.
  5. For new cars, the extended warranty doesn’t kick in until three years after you’ve had it. But you’d still be paying for it during those three years.

Extended car warranties for used cars

Let’s talk about used cars. This would probably be the only situation where you would be tempted to buy an extended warranty. After all, they can be a mystery! You have no idea if your car is going to turn out to be as reliable as you hope. When you buy one, you might be tempted to buy an extended warranty. The big question is… should you? Most new and used car dealers will offer a free limited warranty that covers the car during the first 60-90 days after you buy it. But during that time period, most cars will be just fine. That’s why they will offer an extended warranty.

Third party warranties

You need to be careful with extended warranties. For some people, they can be extremely helpful. But for most, an extended warranty is an expensive waste of money. In a lot of cases, these plans are offered by third-party providers rather than the vehicle’s manufacturer. Do some research before you agree to an extended warranty through a third-party because if they were to go bankrupt, your extended warranty would die with the company! Yikes! If you really want a reliable extended warranty, you should try to get it through the manufacturer.

Know the coverage

Before you agree to purchase any extended warranty, make sure you know what is or isn’t covered. If the warranty requires you to have your car serviced only at the location where you bought the car, you need to understand what that means. You won’t be able to just take it to your local auto mechanic. And, if the labor costs aren’t covered by the warranty, you might wind up paying more out of pocket for the repair with the warranty than you would without it if you took it to your local mechanic.

Read and understand the contract

Read the documents and ask the salesperson about any deductibles involved with the warranty if you need service. Some plans have a deductible applied per visit, others have a deductible per repair. Some plans don’t have any deductible at all. If you had a $100 deductible per repair and you had to do two repairs — such as flush the radiator and replace some hoses, you’d be looking at spending $200 out of pocket. These warranties also have limits and exceptions that you should be aware of. For example, certain repairs might only be covered under specific circumstances such as the vehicle breaking down. This could mean that if a part needs to be replaced due to “wear and tear”, it wouldn’t be covered. More expensive plans might include a wear and tear option.

How much do extended warranties cost?

So, you might be wondering how much an extended warranty costs. It really depends on what it covers and if it’s being offered by a manufacturer or a third-party company. Generally, they will add somewhere between $1000-3000 to the price of the vehicle. If you’re financing the vehicle, it will be added to the final price. This means that you will be paying interest on your extended warranty and will continue to do so until your car loan is paid off.

Does the investment pay off?

Consumer Reports National Research Center discovered that about 55% of people who purchased an extended warranty never actually use it during the lifetime of the policy. And, for the people who actually used the plan, they ultimately spent more for coverage than what they received out of it. During their study, they found that car buyers spent an average of $1,214 for extended warranty coverage but only saved $837 on repairs. That means that they lost money! Without the coverage, they would have been $377 richer. Clearly, this wasn’t the best deal for them.

When to consider an extended warranty

Are there times when you should consider an extended warranty? Absolutely. If you’re buying a car that is notoriously unreliable, you might want to consider it. A trusted resource that you can turn to for reliability information about your car is J.D. Power. You can also check forums and talk with mechanics and other drivers who have owned the same car to get their thoughts.

If you’re worried about your car’s reliability, only consider an extended warranty if it is an exclusionary warranty that covers everything except for specific items. Those are usually more comprehensive, so you’ll be less likely to be denied if you need to file a claim. You should also pay attention to the cost of the warranty and make sure that you’re not going to spend too much money for your peace of mind. Ultimately, getting an extended warranty is just another type of insurance. It’s there if you need it — you just need to know what is and isn’t covered and decide if it makes sense for you to buy it.

Alternatives for extended car warranties

If you’re looking for an alternative to buying an extended warranty, you’re in luck! We’ve got you covered. Peace of mind is very important, after all. That’s why, you should do some research before you buy your car and hone in on the more reliable vehicles. Make sure you can get their repair records. Make sure that you follow the manufacturer’s maintenance schedule. By just following the basic maintenance for your car, you can usually keep your car in good shape and avoid the more expensive repairs that’ll make your jaw drop!

Still, part of car ownership is being able to keep your car in good condition. In the event that you do need to make repairs, it’s good to have some money to pull from — that’s the big reason why people will opt for an extended warranty, after all! So, instead of going that route, you could set up a car fund. Create a savings account dedicated exclusively to caring for your car. If you ever need to make a major repair, you can use the funds from that account to cover it. When you’re ready for your next car, you could use some of the funds towards the down payment!