Buying an extended warranty for your vehicle would seem to be the prudent thing to do. Theoretically, extended warranties provide a layer of security to protect an expensive investment. Salesmen typically reinforce that myth by explaining how it will save you money in the long run and give you peace of mind in case something breaks down. In reality, extended warranties are often a waste of money, especially for car brands with strong reputations for being reliable. There are several reasons why this is the case and they are outlined below.
There is some variation in warranty quality from manufacturer to manufacturer, but generally speaking, most manufacturers have pretty solid warranties that are included in any new car purchase. The powertrain (the components that power the car, including the engine) is typically covered for five or six years (or 60,000/70,000 miles), although some manufacturers have 10 year powertrain warranties. Basic warranties cover most other parts in the car and manufacturers usually offer them for three or four years (or 36,000/50,000 miles) although some offer coverage for five years or longer (or 60,000+ miles).
It’s quite common that cars run into trouble pretty early on as the kinks are worked out and the manufacturer warranty will take care of these issues. As long as you get your car serviced every 35,000 miles or so, you aren’t as likely to face many more problems until you start creeping toward the 100,000 mile mark. By that time, most extended warranties are no longer viable.
The purpose of an extended warranty is to have your car covered for defects beyond the expiration of the standard manufacturer warranty. Unfortunately, that isn’t always the case. There are plenty of extended warranties on the market that run concurrently with part of the manufacturer warranty, thereby significantly diminishing their value. Take a two year extended warranty for a car that has a six year manufacturer warranty. If that two year extended warranty kicks in after the car turns five, then you are really paying double for the warranty as only the second year provides necessary coverage since the first year was already taken care of with the manufacturer warranty.
The Federal Trade Commission calls extended warranties service contracts and urges consumers to carefully examine the documents before buying one as to avoid the overlap issue.
There aren’t many things more annoying than taking your car into the dealer for a specific issue, showing them your warranty and being told the warranty doesn’t cover that problem. Extended warranties in particular are notorious for having a long list of terms and exclusions that render them useless for a wide range of common repairs. So much for that peace of mind you thought you were buying.
Another thing to watch out for is straight up fraud. According to Consumer Reports, con artists have found extended warranty scams to be quite lucrative. Traditionally, they don’t provide the written contract until payment has been received and by that time it’s too late for the consumer, who realizes the ridiculous list of conditions once the paperwork is received. There is some recourse to recoup your money, but it’s often very hard to track down the perpetrators and go through the process of getting a refund.
Not all vehicle problems are created equally. Some are very expensive, costing thousands of dollars, but many cost just a few hundred bucks. When you consider that, it doesn’t make much sense to spend $1,500 or more for an extended warranty that covers a year or two span, given the odds that many repairs you need during that time frame might not even add up to the cost of the extended warranty.
Have a favorite car guy that you trust and always go to? Perhaps, you don’t live near a dealer and only have access to a local shop? Well, if that’s the case then an extended warranty might not be such a good idea. Huffington Post contributor and professional auto mechanic Sam Dillinger pointed out in a well-written breakdown of extended warranties that independent shops often only accept one type of extended warranty, if they accept any at all.
While an extended warranty isn’t needed for a new car, it does provide benefits that make it worth consideration in certain instances. If you plan on keeping your car for a long period of time, are very thorough and knowledgeable about understanding fine print, and are buying a car with a history of breaking down as soon as the manufacturer warranty expires, then it might be a worthy investment. In fact, Dillinger eloquently articulates the positives of getting an extended warranty. All of that said, even though an extended warranty sometimes makes sense, it’s not a necessity the way salesmen would lead you to believe.
