We expect trouble-free operation from our vehicles, so does it make sense to buy an extended warranty for a new or used car?
The average new car costs over $25,000. With that cost, owners expect trouble-free operation and longer vehicle life. Many drivers consider an extended warranty plan to protect their investment.
Extended warranties have been called "health insurance for the engine." In fact, extended warranties are nothing more than extended service plans, similar to automobile insurance in many ways. You pay money up-front to avoid paying considerably more money at the time of the repair. As with insurance, you get what you pay for, and sometimes paying less means not getting the coverage you need.
There are a few things to consider before signing on the dotted line. If you drive more than 12,000 miles per year or plan to keep your vehicle for a long time, then an extended service plan might offer the kind of security you need.
There are three basic organizations that offer extended warranties: automobile manufacturers, new and used car dealerships, and independent companies or third parties. It is up to the consumer to decide which is best for his or her circumstance, but here are a few of the pros and cons of each provider: Manufacturer
Pros: Factory-backed dealer repair network nationwide. No haggling about repair, price, or components.
Cons: Highest upfront costs, and dealer network might be limited in your area. Dealer
Pros: Lower up-front cost: buy plan and service car at the same place.
Cons: Usually only one service point. If they can't fix it, then who should you call? Independent
Pros: Lowest cost (usually between 30-50 percent less than manufacturer plans), most coverage choices, dealers, or local repair shops. Third-party warranty programs are usually their only business.
Cons: Repair shop coverage might not be as promised. Some are "here today, gone tomorrow" companies.
Signs of a good plan:
- Corporate credit card to pay for services
- Ability to choose dealership or independent repair shop
- Warranty is transferable
- Trip-interruption coverage
- Free loaner car
- BBB certified
Signs of a bad plan:
- Out-of-pocket to cover repairs
- Specific caps on repair costs
- Large numbers of exclusions
- Dealership pressure to purchase plan
- Company lacking strong track record of customer satisfaction
My rule on any contract is to read all the details. Assume you can't get out of the contract once you sign, so make sure you understand all the details.