Anyone who’s purchased a big-ticket item has likely been subjected to the extended warranty sales pitch. Salespeople get rabid when selling this add-on feature that “protects” consumers in case anything goes wrong with the purchase after the sale. The reality is that sales reps are compensated on this add-on item. Sure, sometimes an extended warranty is useful, but for many items, it’s just extra cash in the sales rep’s pocket.
Car dealerships are just as guilty as big box and department stores when it comes to extended warranties. When you purchase your new car, you’re hit with a hard sell on the extended warranty option. The finance manager claims that an extended warranty is necessary. It covers maintenance and repair after the standard manufacturer’s warranty expires – usually three years or 36,000 miles. Of course, the cost of the extended warranty can be financed right in with your car loan. What could be easier?
Not so fast! Let’s take a closer look at this. What exactly is an extended warranty? And do you really need one?
An extended warranty is similar to a medical insurance policy. Medical insurance pays for specific illnesses or procedures covered under the policy. As most people realize, you may or may not use an insurance policy, but you pay for it every month, regardless. It’s there if you need it. And when you do, you’re thankful that you have it.
An extended vehicle warranty works the same way. It adds coverage that kicks in after the standard manufacturer’s warranty expires. This coverage may be in the form of repairs or maintenance or it may include items such as roadside assistance, towing, and rental car expenses. Extended warranties generally come with a pretty hefty price tag, which gives many car owners pause during the sales process.
If you’re evaluating the need for an extended vehicle warranty, keep these things in mind.
Most manufacturers offer a standard 3-year, 36,000-mile warranty. How long do you plan on keeping your vehicle? What’s your average yearly mileage? If you’re planning on keeping the car indefinitely, an extended warranty might be a good idea. If you’re planning on shopping again in five years, it may not be worth the cost. Since most manufacturers make reliable vehicles that easily last five or more years with little to no major issues, an extended warranty may go to waste.
It’s easy to find reliability ratings on a vehicle these days. Companies like J.D. Power, Consumer Reports, and Kelley Blue Book all rank both new and used vehicles on reliability. If you’re considering a car with a high reliability score, you may want to think twice about purchasing an extended warranty. Chances are, you won’t use it. However, if the car you’re buying falls in the medium to low reliability range, an extended warranty may provide you with extra peace of mind after the sale.
Extended vehicle warranties aren’t cheap, and consumers are often encouraged to wrap the cost of an extended warranty into the financing of the vehicle. The reality is that when you do this, two things happen:
If you’re good at budget management and have the discipline to set money aside monthly for car maintenance and repairs, it may make more sense to do that rather than buying an extended vehicle warranty.
Remember, you don’t have to buy an extended warranty the day you buy your car. You can always purchase one later. And if you do decide you want one, pay for it up front. Don’t finance it into the car loan.
Extended vehicle warranties aren’t for everyone. The decision to buy one or not is personal, based on your unique situation. Don’t be pressured into the decision. Take time to evaluate all the variables and make the decision that makes sense for you. Whatever you do, be smart about it. Read the fine print before signing anything. And remember that no vehicle is perfect, but most of them are pretty darn good these days.
Now get out and enjoy that new car!