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Should You Buy An Extended Car Warranty?

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99.5K

If you just test drove a new car and are strongly considering buying it, then you’re probably feeling really good right now. But it’s not going to be long before you are ushered into the finance department to sign the paperwork. It is at this point that you will have to decide whether or not to purchase an extended auto warranty. If you are not expected to be presented with this option, you may find yourself confused. Although it may not seem like it, this is a big decision that will affect you at the time of your purchase as well as for many years to come. Generally speaking, an extended warranty is more or less an insurance policy for your vehicle. If something goes wrong within the warranty period you will not have to pay for the repair. The word “extended” is used because you are buying an additional warranty on top of the basic one that is offered by the manufacturer.

When deciding whether an extended warranty is right for you and your vehicle, ask yourself the following questions:

1. What type of warranty is included with your vehicle? For instance, every new Hyundai comes with a 10 year/100k mile warranty. Do you really need to add anything to this? On the other hand, there are manufacturers that only cover new vehicles for 3 years/36k miles. Ask yourself this question: is the included warranty in line with how long you plan on keeping your vehicle? If you are only going to drive your car for 36k miles, there is no reason to buy an extended warranty. This would be a waste of money.

2. What is the past reliability rating for the vehicle you are buying? While this is not a fool-proof method for making a decision, it is something to consider. If you are buying a model that is known for its reliability, such as a Honda Civic, you have a better chance of owning the car for many years without ever having to make a warranty claim. On the other hand, there are vehicles that have a poor reliability history. All of this information is readily available online at sites such as Edmunds.com.

3. Who is the company behind the extended car warranty? Some are backed by the manufacturer, whereas others are governed by a third party (these are usually aftermarket warranties). While manufacturer extended warranties are usually rated higher and offer more in terms of simplicity, aftermarket options are the cheaper of the two.

4. Is there a deductible? This is something you have to ask before purchasing any extended warranty. While it may not seem like a big deal, the cost of paying a deductible can quickly add up. There are many different ways that a deductible can be applied. For instance, are you paying a per visit deductible? Or are you being charged a per repair deductible? With the latter option, three repairs effectively means that you are paying the deductible three times.

5. Can repairs be performed at any dealer or repair shop? With some, you have to go to the dealer that you purchased the vehicle from. This is not a big deal if you live in the area and are willing to do business with the dealership. But if something changes, such as a move to a different part of the country, your warranty may become useless.

Pros

  • Longer coverage on top of the included warranty
  • Saves you money on repair bills in the future
  • Can be financed if purchased at the same time as your vehicle

Cons

  • Costs approximately $1,000 to $1,500 if purchased from the manufacturer
  • If not purchased at the same time as your vehicle you will have to pay cash. It cannot be lumped in with your loan
  • May never use the warranty if your vehicle never breaks

My Experience

Several years ago I purchased a Honda Accord along with an extended warranty for roughly $1,100. Although I was on the fence, I decided to buy, because I was looking for long-term peace of mind. The extended warranty covered my vehicle for 7 years/80k miles. Since I don’t drive a lot, I knew I would have coverage for the full seven years unless I decided to trade the car in.

So, what did I think? Well, I paid the $1,100 but never used the warranty. On the one hand, this was good because it meant that I purchased a highly reliable vehicle. On the other hand, I spent $1,100 and never got anything out of it. Of course, there was no way of knowing this at that point. That’s why you must consider it to be like an insurance premium. You may need to use it for a catastrophe or you may never use it at all. Also, you may want to lend some value to the peace of mind you get from knowing your car will be covered should anything go wrong.

Before deciding for or against an extended warranty, compare all of your options while also asking yourself the questions detailed above. The more informed you are, the better chance there is that you will make the right decision.

Have you ever purchased an extended warranty? Did it work out for you?

(photo credit: Jayel Aheram)

Chris Bibey
Chris Bibey is a freelance writer who over the years has honed his personal finance experience by writing more than 100 feature articles on the subject. In his spare time, Chris enjoys sports - West Virginia football in particular!

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