I don’t ever remember buying one, but I seem to get numerous calls from people telling me that my warranty is about to expire and that I should purchase a new one.
Not only are extended warranties a bad deal on average, in the best case scenario for buying one (which is that the thing actually breaks in a way that the warranty covers), you get to deal with a cost-center bureaucracy that really doesn’t want to pay for your repair if they can at all help it.
Isn’t that pretty much the way all insurance works?
I bought a new car in 2014, love it. First new car- my last car was 20 years old before I basically sold it for scrap.
It came with a 3 year warranty, with the option to buy an extended warranty. I took the offer for a 5 year extension. Cars these days have so many electronics anymore I felt something was bound to go haywire within 8 years, before even considering mechanical problems.
So far the car is up to 26,000 miles and not so much as a hint of trouble. I just love this car! We’ll have to wait and see if I got ripped or not, but the peace of mind knowing that all serious issues will be covered for the lion’s share of the life of this car is worth something- I simply am not worried about it. The transportation aspect of my life is 100% buttoned down, for years to come. Love it!
Never. On my most recent new car purchase, the salesman did everything but juggle chainsaws and spit nickels to convince me how sorry I’d be if I didn’t buy extra coverage.
I actually said, “if this car is such a piece of crap maybe I should be looking somewhere else”.
mmm
Heh. Well, yes, but in many cases it’s more standardized and regulated than auto extended warranties.
This is one reason you should only insure against catastrophic losses. Insure your house. Insure your health. Insure your life. Everything else, self-insure. Less bullshit and more money for you.
A couple thoughts:
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I would not recommend getting an extended warranty on a new car. Too many things can happen before the manufacturers warranty expires to justify the cost.
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For used cars, the big question to consider should be your ability to pay out of pocket for any big repairs. If you would struggle or not be able to cover the costs of major repairs, then absolutely consider an extended warranty.
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Remember - you can negotiate the price with the dealership. The price they are quoting you is significantly higher (2 times or more) than they are paying for the warranty. This is all negotiable - so work with them and push for a lower price.
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If you are financing the car, do consider GAP insurance. This covers the difference between the cash value and the balance owed the finance company. Basically - if you total the car while still owing money on the loan, it ensures that you don’t have to write a check to the finance company for the privilege of losing your car. It is most relevant for low down payment, high interest or long term loans. GAP insurance is typically much less expensive than an extended warranty - but remember, it only applies if the car is totaled, and does not cover repairs.
As with most things, these products may or may not make sense, depending on your particular situation.
As I see it there are three distinct issues:
1-Does it make sense financially? Most of the replies have focused on this aspect. It is an insurance policy, and the nature of insurance is that most people will pay more than they recover, but a few will be saved from a huge expense. That is how insurance works. Recognizing how the bathtub curve works is good advice. In most states there is no limit to the commission the dealer can collect for selling the warranty. I have had them offer me a 30% discount. That tells me they were getting at least a 50% commission (doubling the price) with the first offer. There is a good reason they push them so hard.
2-Is it a scam? If your car breaks down, will it be covered, and will you be able to collect? A few of the replies have touched on this. Even when the item is supposedly covered. There are many ways that claims can be denied. There can be fine print such that you have to have every single oil change documented, or they will deny a claim on the air conditioning. And even if everything is on the up-and-up, the warranty company can go bankrupt, and you end up with a pennies-on-the-dollar check from the bankruptcy liquidator (this happened to me once with dental insurance).
3-Can you get the work done by a competent shop? In my experience, the only reliably decent mechanics are independent shops that specialize in one or at most three brands of vehicles. These are the only places that can keep core competent mechanics on board for years or decades, and the only place where you talk to the mechanic/owner instead of a “service writer”.
Frankly, I have had such poor experiences with mechanics being able to correctly diagnose the problem that I would never buy such a warranty unless it paid me to do the repair myself. Considering that it costs me a minimum of a half a day to pick up, drop off, call, wait, etc. for any repair, it can even be time effective.
I’ve never done it but might think about buying an extended warranty from a manufacturer up front for a new expensive to maintain car. As several have noted, insurance tends to have negative expected value for the buyer. Stand alone insurance providers couldn’t exist if that wasn’t generally so.
I say ‘tends’ because in case of a manufacturer’s original warranty that value is bundled up in what you pay for the car, and hard to say eg. you pay more for Hyundai’s at the margin because their original warranty is 10yrs and somebody else’s is 4. There’s lots of moving parts in that pricing having to do with differences in the cars, marketing, and profit target of the manufacturers. But if somebody is in the standalone business of writing warranties, then obviously they estimate you’re paying more than the expected value of the contract, and they are if consistently wrong about that they will disappear.
In general you should buy insurance for expenses you couldn’t or with seriously upset your situation to cover. But it’s up to you to buy it for peace of mind beyond that.
I bought a BMW a couple of years ago. I was still reflexively against extended warranty and didn’t buy it. But, I think I’d consider it next time. I’ve been satisfied with service under the basic warranty*, and buying extended from a manufacturer you stay in that system, much less uncertainty of how you’ll actually be treated if you make a claim. And it’s obviously less likely a major manufacturer will disappear than a standalone warranty company. And while experts on the internet will quickly tell you ‘all the independent shops’ which fix those cars for much less and have better mechanics than the dealers, actually finding one in the real world is a task, and a risk the independent isn’t so good. Whereas paying full freight at the dealer service dept post-warranty is indeed painful for those cars. Anyway I’ll manage with basic 4 yr, find as good a way as I can to care for it after that, and pay what it costs. But buying a few years extended doesn’t seem crazy to me, if you’re going to buy a car like that to begin with.
*they covered an electrical repair that might have been caused by physical damage to the car in an accident, though not obvious if it was related or a coincidence, with no questions.