Extended warranties on most products have become somewhat of a joke. Most people advise that you should never purchase an extended warranty as they are a blatant cash grab and not worth the paper they’re printed on. However, this axiom has not stopped automotive manufacturers and dealerships from pushing extended warranties on the vehicles they sell—particularly for used vehicles where the original factory warranty has expired. And with original warranty coverage declining from the old standard of five years or 100,000 kilometers to three years or 60,000 kilometers, many people are wondering if they should invest in an extended warranty. But before you make any decisions concerning an extended warranty, consider the following 10 pieces of information.
10. Studies Show Most People Never Use the Extended Warranty
According to Consumer Reports, the majority of people (55%) who purchase an extended warranty never used it for repairs on their vehicle during the lifetime of the policy. Yet, the average cost of an extended warranty on a used car in the U.S. is $1,200. That’s a lot of money for something people never needed to use. The reality is that extended warranties tend to cover the most reliable parts of a vehicle such as the engine and powertrain. Extended warranties typically don’t cover headlight bulbs, brake pads and other parts of a car that wear out and need to be replaced frequently. If you’re going to purchase an extended warranty on a vehicle, make sure you know everything it covers or you’ll be surprised when you’re told you have to pay to replace the spark plugs.
9. Extended Warranties Cost More Money Than Paying Out of Pocket for Car Repairs
The same Consumer Reports study of more than 12,000 people who had purchased extended warranties found that, on average, people who had extended warranty protection on their vehicle saved $837 on car repairs. This means that, on average, $837 worth of car repairs were covered by the extended warranty. However, with extended warranties costing an average of $1,200 to buy in the first place, people actually lost more than $350. Had people who bought extended warranties just paid for car repairs when they occurred, they would have been $363 ahead on average. Plain and simple, this means that extended warranties are not a good investment. In the end, they do not save the average motorist money on car repairs over the life of a used vehicle. People would be better off paying out of pocket for vehicle repairs when they happen.
8. The Less Reliable the Car Brand, the More Expensive the Extended Warranty
An extended warranty on a second-hand Toyota can be bought for around $1,000. An extended warranty on an equivalent Chrysler (same year, same mileage) can cost as much as $2,500. Why the difference in price? Chryslers are prone to breaking down more than Toyotas. And the more likely a vehicle is to breakdown and need maintenance, the more expensive an extended warranty will cost. This brings us to the question of which car brands are prone to needing repairs, and, as such, charge the most for extended warranties? The answers are BMW, Chrysler, Dodge and Mercedes-Benz. By charging a lot for the extended warranties they offer, these brands are telegraphing that they sell among the least reliable vehicles on the roads. Conversely, the car brands with the cheapest extended warranties are Honda, Subaru and Toyota, which happen to be the most reliable car brands.
7. You Can Negotiate the Price of an Extended Warranty
A sales person at a car dealership offers you an extended warranty for $2,000. You decline. The sales person then drops the price for that same extended warranty to $1,300. What this means is that the price on extended warranties, like everything else having to do with cars, is negotiable. There is nothing stopping you from offering $750, or even $500, for an extended warranty. You can even negotiate an extended warranty as part of the total price you pay on a used vehicle. All the sales staff can say to you is “No.” But if you are going to buy an extended warranty, be sure that you get the very best price for it. And that is almost certainly not the first price you are offered. However, if you do negotiate the cost of an extended warranty downward, be sure that you end up with the warranty coverage you fought for. Many car dealerships pull a bait-and-switch on customers, charging them for a premium extended warranty and then providing them with only basic warranty coverage.
6. Car Dealerships Are Not the Only Place You Can Purchase an Extended Warranty
If you really want an extended warranty on a used car you are considering buying, then do yourself a favor and shop around. After all, car dealerships are not the only place where you can purchase an extended warranty. Banks, insurance companies and automotive clubs also sell extended warranties on cars. And many of them offer more attractive prices and rates than you’ll find through a car dealership. Also be aware that interest can be charged on warranty fees, especially if you pay for an extended warranty on a monthly payment plan. The interest rates charged at car dealerships tend to be a lot higher than those charged by third party insurance companies or auto clubs. Shop and compare and you’ll be surprised at how much money you can save.
5. Extended Warranty Scams Are Pervasive
Scam artists love extended car warranties. In fact, scams related to extended warranties on vehicles are among the most pervasive in Canada and the United States. Most Better Business Bureaus receive thousands of complaints each year from consumers who have been ripped off by a scammer peddling an extended warranty for their car. Beware of any solicitations for extended car warranties that come through the mail or by telephone, and never give out your credit card number to these people. Also, you never want to buy an extended warranty that is to be mailed to you. If you are going to purchase an extended warranty, then you want to be able to read it upfront and know exactly what all the coverage includes. This is why it is best to purchase an extended warranty from a car dealership, bank, insurance company or automotive club. And you should be the one searching for an extended warranty. If a company calls you out of the blue offering an extended car warranty, chances are something is not right.
4. Get the Full Protection
We’re not saying you shouldn’t buy an extended warranty on a second-hand car. But if you are going to take the plunge and purchase an extended warranty, then be sure to get the full bumper-to-bumper coverage. The reason we say this is because there is very little difference in price between a bumper-to-bumper extended warranty and limited extended warranty that only covers the engine and powertrain on a car. Consumer Reports found that an extended warranty providing the maximum protection for a vehicle typically costs less than $100 more than a limited extended warranty that only covers what’s under the hood. So, if you’re going to splash out on an extended warranty for a used vehicle, be sure and get the maximum coverage that is available.
3. You Should Only Buy an Extended Warranty When the Factory Warranty Runs Out
New cars comes with what’s known as a “factory warranty.” This is the standard original warranty on a car that is good for three to five years or until you exceed a certain number of miles or kilometers on the vehicle. Many used cars are still covered by the factory warranty depending on the age of the vehicle and the odometer reading. Most car experts recommend that people try to buy a used car that still has some factory warranty coverage on it. Remember that you do not need an extended warranty on a car you own until the factory warranty expires. Most car dealerships will contact you when the factory warranty is about to expire and ask you to come in to discuss purchasing an extended warranty. However, some unscrupulous car dealerships will try to roll an extended warranty into the purchase of a new vehicle simply to drive the price up. Don’t be fooled. Use the time you own the car when it is covered by the factory warranty to get a sense of its reliability. Then you can decide whether you feel an extended warranty is needed when the factory warranty runs out.
2. Extended Warranties Are Used to Drive Maintenance Appointments
Extended warranties usually cost more than the upfront price. You may pay $1,200 for the extended warranty on a used car. But most extended warranties also require you to pay to have your vehicle serviced at set times, and at the car dealership where you purchased the extended warranty. This means that you will regularly pay out of pocket to have the engine oil changed and the tires rotated at the car dealership where you acquired the extended warranty. This practice rubs many people the wrong way as they feel that the car dealership is leveraging the extended warranty to drive business at their service department. And those people are exactly right. More than covering the cost of repairs for the policy holder, extended warranties are used to lock-up customers and ensure that they do everything needed for their car at the dealership. This is what keeps the cash register ringing at car dealerships.
1. Loopholes Are Used by Car Dealerships to Weasel Out of Extended Warranties
The reason that extended warranties are a joke and people feel that they are a waste of money is because they contain loopholes and fine print that enables car dealerships and other companies to not honor them when a vehicle breaks down and the owner needs to use the warranty coverage. For example, if you miss a scheduled maintenance appointment at the car dealership where you bought the extended warranty it could render the warranty you paid thousands of dollars for null and void. Get the car serviced at another garage, and that could also void the warranty. Also, what does the warranty cover? You might assume it covers everything under the hood, only to read the small type and discover that it only covers “vehicle parts bathed in oil,” which does not include the radiator that just blew. Extended warranties are tricky. But the bottom line is that they are designed to ensure that the customer pays and the company backing the warranty does not.