Extended Vehicle Warranties - Things to Consider

Should you buy an extended warranty when you purchase a vehicle?

There’s no cut-and-dried answer to that question. A lot depends on how long you typically keep a vehicle and how much you pay for the warranty. Here are some things to think about before you buy:

Warranties Aren’t Cheap

On new cars, an extended warranty may cost $1,200 or more. It won’t cover anything until your new-vehicle manufacturer’s warranty expires. How often do you get a new car? If the included warranty is still in effect when you trade the car in, you’ve wasted your money on an extension, although some manufacturers will give a credit toward a new warranty if it’s never been tapped. TIP: Markup on warranties is very high, so there’s hundreds of dollars of room for haggling. If the dealer says he can’t lower the warranty price, then say, “OK. Just lower the car price more.” Many will.

Used Car Warranties Cost Even More

Insurers take on more risk with a used car, so an extended used-car warranty may cost $500 to $750 a year. TIP: Consider a factory-backed certified used car. The manufacturer typically extends the warranty on major mechanicals—the engine, transmission and air-conditioning—to 100,000 miles. So, if you pay a few hundred more for a certified used car that has 50,000 miles on it already, you’re getting a 50,000-mile warranty as part of the deal.

Warranties May Not Be Transferrable

If you’re thinking that your car will be worth more when you sell if you have an extended warranty, make sure the warranty can be transferred to a new owner. Many can’t be. Some are transferrable for a fee—often about $100.

Not Everything is Covered

Warranties don’t cover “wear-and-tear items.” You’ll still have to pay out of pocket to replace wipers, light bulbs, brake pads, ball joints, tie rods, spark plugs, filters, shocks or struts, tires and many others items. If you have a manual transmission, the clutch is seldom covered—and it’s a part of the manual transmission that’s one of the most likely to fail.

You May Have a Deductible

Sometimes you must pay up to a certain amount—a deductible—on any covered repair. That may be $100 or $250 or even $500, depending on the company.

Most Buyers of Warranties Don’t Use Them

A survey by a major consumer affairs magazine found that fewer than half of warranty buyers ever used the warranty. That means the money was wasted, unless you consider $1,000 or more for peace of mind worthwhile.

Where May You Get Repairs Done?

Some used car dealers may stand behind the vehicles they sell, but they require you to have the covered repairs done at their shop. That won’t work if you travel a lot or plan to let your son or daughter take the car to college. Make sure your warranty allows any shop to do the repairs. TIP: Take time to read the warranty before you buy. If filing a claim is difficult, look for another warranty company or do without.

Buy Catastrophic Coverage

Warranties aren’t intended to save you money on minor repairs. If they covered everything, they would cost even more. Warranties should protect you against the cost of major repairs, such as rebuilding a transmission or an engine. TIP: If you keep your vehicles for years, think of the most expensive repair you are likely to encounter. If it costs less than the warranty, the coverage may not be worthwhile.

Check Out the Company

Search online for complaints about the warranty company. If you find too many, and they sound believable, don’t buy. Check with the Better Business Bureau. If a warranty company is required to be a licensed insurance company in your state, check with the state insurance commissioner’s office.

Avoid Scammers

You probably get annoying calls from warranty companies saying “your warranty is about to expire” (even if you don’t have one) and “this is our final call.” Then, even after you ask not to be called again, you get three more calls. Or seven. Or 10. TIP: These people obviously are lying. Don’t buy! Report them to your state’s consumer protection bureau. And don’t be afraid to file telephone harassment complaints with police. Owning a robo-dialer is not a license to harass people.