I am looking at a 2018 Mini Cooper Clubman, 26,600-or-so miles on it, for sale at a dealership. The base price is affordable. A warranty lasting 4 or 5 years, 50,000-60,000 miles adds between $3000-$4000 to the price.
Here is a generic statement of warranty coverages:
The dealership never recommends anything less than the Gold plan. Note that some items (e.g., hybrid-related issues, alarm, etc.) are not applicable to the car I’m looking at.
The nice lady who handles warranties recommended the Gold plan for me over the Platinum plan. Much of the extra stuff covered in the latter, more expensive plan is probably not of much use to me. Keep in mind that for the past 30-plus years, I’ve driven a 1968 Camaro with no working radio, climate control or pretty much any of the extras covered in the Platinum plan. If I don’t use it, I won’t miss if it stops working.
I drive around 1200 miles a year which is unlikely to change in 4 or 5 years, so mileage isn’t a consideration here. The salesman suggested I might be better off with no warranty. Friends with a 16-year-old Mini bought new concurred; in all that time, 90% of their repairs have been non-warranty-covered and the one time it really would have helped was for a new (manual) clutch. The car I’m looking at is an automatic.
I am interested in gathering additional data points on this issue: to warranty or not to warranty?
The last time I purchased a car, I was also pressured into getting the service plan to cover any issues that came up within the first three years. I ended up paying that money and getting nothing in return, but I don’t regret paying it because if something did go wrong with the car then, I would be able to get it fixed at a time where I had just spent all my savings on a new-to-me car. In some ways I’m glad that I never had to use it, as it would have meant being without a car for a longer period of time than with just regular oil changes and inspections.
If you have the savings to buy another car immediately should the one you’re looking at breakdown and cost more to repair than it’s worth, don’t buy the warranty plan. You’ll definitely be a big loser in terms of expected value there. You need to be getting the peace of mind that you won’t be out of luck if something unexpectedly goes to make the insurance premium worth the price.
If you feel you do need the warranty in order to be able to ensure that you have transportation until you save up whatever you spent on the car to be able to afford another one, be sure to at least haggle over the cost and deductible. I had no intention of haggling, but I mentioned that I generally preferred plans with deductibles over the one that they were pitching that had no deductible, and they said they’d lower the price of the plan they were pushing to the one that had the deductible. Maybe that was part of the plan all along, but I certainly would have paid more for zero benefit if I hadn’t mentioned that I didn’t want a zero deductible plan.
If you really drive 1200 miles/year, you’re extremely unlikely to have any significant repairs on such a low-mileage car in 5 years. Oil changes, and possibly a few maintenance items such as replacing belts and hoses, would be about it. And belts and hoses are carefully excluded from coverage–see the last page of that PDF.
If you don’t run the A/C occasionally, that might break down in that length of time. The A/C and brakes are the only items covered by any of those options that you have a semi-realistic chance of needing. And those 2 items put together are very unlikely to add up to $3000, at least if you have the work done at an independent shop.
First, what they are offering is not legally a “warranty,” it’s a service contract. By law, a warranty is offered by the manufacturer or seller at no additional cost above the purchase price.
These are not a good deal for the consumer. Frankly, anything a car dealership tries to sell you is not a good deal for the consumer.
Here is an excerpt of an article in Consumer Reports.
A CR member showed that car owners typically paid more for the coverage than they got back in direct benefits. This isn’t surprising, because extended warranties make a lot of money for those who sell them.
“The fact is, extended warranties are overpriced. That’s the reason people sell them, because they make a bundle on them in commissions,” says a money expert and radio talk show host, Dave Ramsey. “I don’t recommend buying extended warranties, ever. If you can’t afford to repair your car, then you can’t afford the car.”
From a pure numbers standpoint, the smart money is on skipping the protection and instead focusing on buying a model with better-than-average predicted reliability, and then properly maintaining it.
There are companies that sell reputable aftermarket service plans (not “warrantees” as @CookingWithGas correctly points out). Those might be economically effective. There are also disreputable companies selling rip-offs; those are never worthwhile. How to tell which is which? Darn good question.
There are also cars where the plans are underpriced and someone who is aggressive about keeping their car in tip top shape can gain more in repairs than they’d pay in premiums. Of course to be money ahead presupposes that absent the service contract they’d really be paying for those minor repairs & fixes out of pocket.
But if someone is the type to let their used car slowly deteriorate into, well, an old raggedy car, there’s mostly no point for a service contract. You’re spending money protecting stuff you wouldn’t fix if you hadn’t spent the money on the service contract. Which amounts to a vexing and ultimately unproductive effort to claw back (some of) the money you gave away when you bought the contract.
The scenario where a service contract can provide value is if buying the car is all you can afford. Assume the transmission later fails outright. If you can afford to replace that transmission, or afford to throw away the car, and pay off the loan, and get another car, then you don’t need a service contract. You’ll be money ahead to run the risk of transmission failure & “self-insure” if you get unlucky.
But … If you can’t afford that surprise expense, then you’d be better off with a real service contract. Unless you get lucky and the transmission never fails. If it never fails, you spent money on a contract that you’ll never use.
Do ya feel lucky, punk? Well do ya? You’re gambling against a dealer that has all the data while you have almost none. They don’t stay in business by paying out more than they take in.
Punchline: There are exceptions where a service contract makes sense. I have contracts on both my cars and on the previous 3. But I’m in an exceptional situation. The ones the dealers try to sell are rarely the best = right answer for you. They’re selected to be the best = right answer for the dealership’s margins.
We got talked into a “warranty” once, a long time ago. Then when something went wrong, we took the car to a service place and they looked at the “warranty” as if it was something written in Sanscrit, and said, “we don’t know what this is. We don’t accept this kind of thing”.
This looks like a third-party warranty (or “service contract”). They’re almost always junk. The only warranties that are not scams are the ones offered by the manufacturer.
Generally anything a car dealer sells you is a high-margin moneymaker for them. I wouldn’t go so far as to call them a scam, but if they favored the consumer, they wouldn’t sell them. I am not familiar with service plans you can buy direct from the provider.
Also one thing to watch for in these contracts is a deductible. You might have a $3000 transmission repair with a $1000 deductible.
I believe you would have to file a claim with the service plan provider. It’s not like health insurance where the repair shop just takes care of the paperwork for you. Long time ago so definitely a moot point but here’s where you read the contract to see what you have to do to file a claim.
There are both kinds. I have a 3rd party service plan. I bring the car to my shop, they handle everything to do with the plan company getting them paid, and my car is fixed at basically a small co-pay to me.
Maybe. That amounts to “If you can’t afford two cars you can’t afford one.” I think that’s excessively pessimistic.
Also note that “afford” has a couple of different meanings. For folks with assets, “afford” is a matter of their balance sheet. For folks closer to the bone, “afford” is a matter of cashflow.
A person down at the cashflow level might do better to buy a real service contract to insure against the catastrophic unaffordable repair problem. Yes, across lots of people and lots of cars they’ll pay more than the richer folks who can “self-insure” against catastrophic repairs. But they themselves won’t face a wipeout if they are the one-in-a-thousand unlucky person to blow a transmission or whatever. This is just another way that being poor is expensive.
As folks have said, there’s never a reason to buy a scam. The problem is knowing what’s a scam.
WE bought a used car 2 weeks ago and the dealer offered a $4K “warranty”. The dealer was 56 miles from my house. I said to him;…“If I did buy this how can I get the car from my house back to you if it is broken” he said:…“Oh you can take this to any shop in your town and it is good” I knew right then it was a scam. No sale.
Well not all manufacturers will honor their own warranties. I bought a Kawasaki motorcycle 20 years ago, got their extended warranty from them. It included everything except normal wear items, brakes, tires, oil. My transmission started to make noises at 50,000 miles or so. I took it in and they told me what it was, some part that helps slide the gears together. They told me transmissions are wear items and refused to honor it. I outright asked how is a transmission a wear item but they never could tell me. I told them I would never buy another Kawasaki again.
Of course motorcycle manufacturers can be a pain, I had a recall on the stator for my current bike. The stator is in the engine oil so you have to replace the oil when you repair it. Suzuki said oil was not part of recall so I had to pay for the shop to put new oil in.
My advice is to wait until someone calls you about your car’s warranty and buy whatever they sell you. No, just joking. Keep in mind that they aren’t selling you a service contract because they care about you, they know that statistically they’ll make money off it. Maybe you personally may come out ahead by getting one, but on the whole they’ll take in more than they pay out.
In the case of a 5 year old car with <30,000 miles on it, I personally wouldn’t bite on the warranty. And with as few miles as you drive, you’re unlikely to encounter major issues. Keep up with regular maintenance and you should be fine.
Anything metal-on-metal is a wear item. But unless you were abusing it in some way, I can’t imagine a transmission would go bad that fast unless it was defective.
But that would mean the entire engine would be a wear item and a warranty would be worthless. I get what you’re saying, but after 50k for something that isn’t actually constantly rubbing against something else it shouldn’t have failed. And nope, I wasn’t abusing the bike, it was a touring bike and I used it to tour all over the US for a few years.
Any decent car worth owning should last the first 100K miles without any major out of warranty repairs. If you are buying this car with 26K miles and the extended warranty will get you to 76K-86K miles for $3K-$4K you are gambling on making out on the deal by having repairs exceeding this amount within the next 5 years.
I wouldn’t take that bet. I’d rather put that $3K-$4K in my pocket and hold onto it to use towards any repair that may arise in that time.
My bet is you come out ahead or break close to even funding your own repair account.