Should You Buy an Extended Warranty on a Car?

Posted by Don on July 22, 2015

For many purchases in life, the warranty that comes with the product from the manufacturer is sufficient. But there are times when you want an additional warranty on top of the standard warranty that the item comes with. While in many cases, the extended warranty is a money ploy for the retailer, there are times when an extended warranty does make sense. I am going to focus on automobile extended warranties.

warranty

(Photo Credit: vectorolie/Free Digital Photos)

The Game of Extended Warranties In General

I used to work for an electronics retailer after graduating college. One of my monthly goals was to sell a certain number of extended warranties on products. Personally, I think that based on the warranty, many of these extended warranties are not worth it.

For example, many times the extended warranty allows you to bring in the item to the store and the store will ship it off to their repair center to fix. If it cannot be fixed, then it will be replaced. Sadly, many salespeople only mention the part about the item being replaced. When the customer comes back to the store, they are upset that they aren’t simply getting a new item.

Other times, the customer isn’t told what is and is not covered under the warranty. When they bring the item back to get fixed, they are upset when they learn it is not covered due to negligence.

In all, stores push the extended warranty because many times, the item never breaks (or the customer forgets they have the warranty). In this case, it is purely profit for the retailer.

Extended Car Warranties

In many cases, extended warranties for cars can be looked at the same way. For the most part, they are purely profit for the dealer, or the third party company that sells the warranty. Below are a handful of advantages and disadvantages to consider before buying the extended warranty.

Advantages

  • Helps reduce the cost of repairs once the standard warranty runs out (assuming you keep vehicles for a long time)
  • Potentially transferrable when selling car, helping to add to resale value

Disadvantages

  • Not worth it if you buy new cars every few years
  • No added resale value when trading in car
  • Many don’t cover a lot of the expensive repairs when buying a warranty from a third party

Let’s take a look at all of these. If you tend to buy a car and keep it for a long time, then buying the extended warranty could make sense for you. But if you only keep a car for 5 years or less, then buying the extended warranty doesn’t make much sense because you will be covered under the standard warranty during most of this time.

Additionally, you have to look at the car you are considering as well. Some cars are more reliable than others. It might not make sense to buy the extended warranty on a car that is very reliable. But, it might make sense to buy it for a car that is not as reliable.

Lastly, be sure to take into account the transferability of the warranty. Many times you can transfer a warranty to the new owner when selling your car. This could lead to a higher asking price when selling your car privately. Just know that a dealer will not offer you more for the car because you have the extended warranty when trading the car in.

How to Buy an Extended Warranty

If you are looking to get the best deal on an extended warranty, then negotiating it with the total price of the car is your best bet. When you agree to a price and then consider the warranty while sitting in the finance manager’s office, you won’t get as good of a deal.

But all hope is not lost. Know that in many cases, you don’t have to decide on the extended warranty right then and there. Many times you can buy the extended warranty up to 30 days after buying the car. In some cases, you may even be able to negotiate and buy the warranty from another dealer.

I know of a few local dealers that are on car forums selling extended warranties to car owners who didn’t buy the car from that dealer. Before buying, just make sure you do your homework and verify that the warranty is the same as the one from your dealer.

Lastly, some dealers allow you to buy the extended warranty up until the standard warranty expires, which could be 30,000 miles or more in the future.

Note also that if you buy the extended warranty at the time of purchase, you can in many instances get a prorated refund if you cancel it within the first 30 days of ownership.

Think Twice About 3rd Party Warranties

One area to steer clear from is 3rd party extended warranties. You’ll get these unsolicited in the mail all of the time. While they might sound good, many times a lot of repairs are not covered under these warranties.

In many cases, they require you pay a fee every time you take your car in for service just to find out if the repair is covered or not. Either way, they are making money.

Final Thoughts

Overall, you have to look at many variables when considering the extended warranty when it comes to cars. You need to know the warranty the car comes with, how long you plan to keep the car, and how reliable the car is.

What you should not consider solely is if buying the warranty is a “good deal”. If you have no plans to keep the car a long time it doesn’t make sense just to buy the warranty for the deal it is. In the end, it is just more money you spent that you didn’t need to.

So be smart when it comes to extended warranties and ask a lot of questions. Make sure you have all of the information you need to make the smartest decision for you, your situation and plans.

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