Extended Warranties

Do You Need One? - Maybe, maybe not.

If you're buying a new car and trade it in every 2 or 3 years - You don't need an extended warranty.  The factory warranty is extensive and covers any factory defects. 

If you're buying a new car and keep it longer than 2 or 3 years - I recommend purchasing an extended warranty from someone like Warranty Direct.

If you're buying a late model used vehicle - If the car you're getting is less than three years old and has less than 36,000 miles, it's probably still covered under the original manufacturer's warranty, which goes with the vehicle regardless of ownership (watch out, some new car warranties are only for 2 years or 24,000 miles).  If so, determine the original delivery date (Date Of Service).  This is the date your warranty commenced.  On a demonstrator, executive, or program car (all considered used cars), the warranty clock starts running the day the car first started use as a demo, not the date you purchased it.  If the factory warranty is up in the next 12 months or 12,000 miles, consider getting a warranty that extends the manufacturer's warranty.

Why should I consider purchasing an extended warranty on a new car?  For one simple reason, the newer the car is, the cheaper the warranty is.  Take a look at the Warranty Direct site for an example. Get a price on a the same vehicle, one of them new and one of them 3 years old with about 40,000 miles.  Even though the newer vehicle will be covered for more years and miles, its warranty will be substantially cheaper. The reasoning that the warranty company is betting on is that you won't keep your vehicle longer than the 2 years or 24,000 miles that the factory covers you for.  Even those of us who used to get a new car every two or three years, have been putting it off for longer periods of time. That 2 or three years quickly turns into five or six. Just ask my father-in-law. In 1996 he insisted that he was only going to keep his new Audi until the original warranty ran out. The stock market made a change for the worse and today he has a nine-year-old 1996 Audi that he just spent $3400.00 dollars to repair.  All together he's spent over $5000 on repairs that would have been covered by a $1200 warranty. 

Basic, Mid-line or Deluxe? - For cars that cost $5000 or less, it's debatable whether to get a warranty at all.  If it cost at least $10,000 or is less than four years old, consider deluxe. The middle priced warranties don't cover the items that are most likely to break, and don't offer $0 deductibles either. The newer the vehicle, the more likely it is to have complex computer systems.  Climate controllers and ABS motors can set you back $800 or more, but basic plans don't cover ABS or HVAC.  Deluxe, top of the line, plans include these and also the smaller component systems.  They sometimes provide towing and rental cars while your vehicle is being repaired.  For these reasons a deluxe warranty can be a worthwhile investment. 

What's Not Covered? - Exclusions found in all extended warranties include glass, headlamps, taillights, bulbs, trim, moldings, bright metal, upholstery, paint, exhaust systems (including catalytic converters), tires, batteries, brake rotors, drums, struts, and shock absorbers.  None cover routine maintenance, such as oil changes or tune ups.  Most don't cover overheating, regardless of the cause, or consequential damage (such as blown or cracked heads), even if those parts would otherwise be covered.  All extended warranty contracts require that you maintain the car according to the schedule in your owner's manual.  Keep all your receipts in case your maintenance claims are questioned.  Only damage caused by accident or abuse is not covered.

Buying - Before you buy an extended warranty, obtain several to read, review and compare.  This will help you learn the language and understand what's covered.  Have your mechanic look over the ones you are considering and give an opinion based on a review of the car and predictable problems.  Make sure all major systems and their consequential failure are covered.  Insist on a written list, itemizing what is and is not covered.  Get any promises in writing, with the signature of the person making that promise.  

Some warranties require that you pay the bill, send them the receipt, and wait for the company to reimburse you.  This lets them invent an excuse why your repair is not covered and refuse to pay the bill.  Choose an extended warranty that pays the repair shop directly.  

Beware of deductibles.  You may be charged the deductible for every part repaired.  If your car needs a blower motor, a heater core, and a window regulator, your payment may be 3 times the $100 deductible.  I highly recommend paying the extra $100 to $200 to get a $0 deductible and avoid this issue entirely.  

Depending on what they cover, deluxe extended warranties run $1000 to $3,000 or more for a two or three year period.  If you buy direct, you avoid dealer markups.  I recommend brand-specific coverage (Ford, GM, etc.) and national companies like Warranty Direct over smaller outfits, because you can get service from dealerships around the country.

The dealer's business manager may make you feel like a fool if you don't buy an extended warranty, some unscrupulous dealerships may even insist upon it if you're financing the vehicle through them.  What's in it for them?  The most profitable part of the retail automobile industry is the extended warranty business: anything over the dealer's cost is profit.  Typically, the salesperson gets a flat fee and the balance of the profit goes to the dealer.  Those fees and profits can range anywhere from $250 to $1750, depending on the warranty. Salesmen can make more money selling extended warranties than they can selling cars. That's why I can't recommend buying an extended warranty at the dealer. My warranty survey found that when compared to comparable third party warranties, the plans offered by dealerships cost from 40% to 100% more.

There are a lot of people making a lot of money selling inferior products.  This is definitely a "buyer beware" situation and in my opinion, unless you're prepared to pay for the very best policies, most extended warranties are more trouble than they're worth.

Find out the differences between deluxe extended warranties in my warranty survey>

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