Should You Splurge for that Extended Warranty?


After hours spent researching, test driving and negotiating the price of a new vehicle, there is one final question for which many car shoppers aren’t prepared: Do you want to buy an extended warranty?

Unscrupulous car salespeople may make saying “no” to this question seem like rolling the dice on the future of your new car, but there are actually some real considerations that should go into this decision.

How long are you keeping the car?

First among these considerations is whether you will have the car long enough for an extended warranty to even come into effect. All new vehicles come with warranties from the manufacturer, but as Edmunds points out, if you are the kind of driver who enjoys upgrading to a new car within three years, an extended warranty is illogical. If, alternatively, you are the type to drive a vehicle until it falls apart, an extended warranty may be a worthy investment.

Can your budget handle repair bills?

Ultimately, the purpose of an extended warranty is to defray the cost of an unexpected future repair bill. So, the question is whether or not your monthly budget can absorb the burden of a sudden, pricy repair, such as a new air conditioning system or transmission. If the answer is “no,” BankRate.com suggests that an extended warranty may be worth the cost.

How reliable will your new car be?

This almost sounds like an unanswerable question — after all, this is a brand-new vehicle, and BankRate.com points out new vehicles are becoming more reliable every year. However, not all new vehicles are made equal. U.S. News and World Report suggests that car buyers research vehicle reliability from sources like J.D. Power. The lower the reliability score, the newspaper reminds drivers, the more likely a certain vehicle is to need major repairs in the first few years.

Where does the warranty come from?

Not all warranties are created equal, either. Generally speaking, warranties can come from one of two sources: the manufacturer or a third party. A third party, in this case, could mean the dealership or a completely unrelated company.

Of the two, Edmunds definitely recommends choosing the warranty backed by the manufacturer. Third-party warranties might only be usable at the dealership you bought the car from, so if the dealership shuts down or the vehicle breaks down on a road trip, you could be out of luck. Beyond that, U.S. News and World Report says to stay away from any offers over the phone, through the mail, or over email as these are most likely scams.

Does the warranty cover what you want?

Finally, it always pays to read the fine print. According to Edmunds, many warranties don’t cover wear-and-tear parts like brakes, which eventually wear out. On top of that, extended warranties may be offered on a tier system, where each version has its own level of coverage. Different plans cover costs in different ways, be it full coverage, a deductible or after-the-fact reimbursement. It definitely pays to know exactly what the offered plan will cover, as well as how it will do so.

Armed with this knowledge, the question of whether or not an extended warranty is a good idea is easily answered, before even stepping into a finance office.

 

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