Extended Warranties: Get the Pros and Cons of Extended Auto Warranties Before You Spend the Money

Today's vehicles are a complex web of software and mechanical engineering, so an extended warranty might be a good idea or could end up being unused

The Pros and Cons of Extended Auto Warranties
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March 22, 2018

Do you really need an extended warranty on your new (or new to you) car?

A decade ago, the answer was simple. You probably didn't need an extended warranty unless you were getting a vehicle that typically had a lot of problems or was the first model year. You typically didn't get an extended warranty on a Honda or Toyota, but typically did on a Hyundai or Kia. Today, the answer is not so simple since vehicles have made leaps and bounds in reliability.

The Vehicles of today are wonderful, but very complex

Today's vehicles are a complex web of software and mechanical engineering. What used to be an easy-to-diagnose problem now involves tracing steps through two, three, or even more systems, checking for proper operation of software, and following long diagnostic flow charts. Everything works together to make your driving experience as smooth as possible. In the old days, if the air conditioning wasn't working you had to make sure the compressor turned on, that the system had enough refrigerant, and that you had power to the system. Today, there are additional things to check, such as software updates across multiple systems, whether the solar sensor is communicating with the computer, etc. If you have automatic climate control or even dual zone climate control, there's even more to check and more that could go wrong.

Vehicle Cost & options can influence your decision

You may want an extended warranty if your vehicle cost a significant amount of money, and that amount is up to you. The more fancy bells and whistles you add to your car, the more that can go wrong. Adding four wheel or all-wheel-drive to your car may add between $4000 and $6000 to the total cost. But repairing those systems could cost just as much or even more depending upon the problem. Do you have a hybrid vehicle? Hybrid vehicles can sometimes break the bank and sometimes take months to repair depending upon the problem, the part involved and whether there is a technician trained for the vehicle.

Manufacturers are building better cars that last longer and typically have fewer problems

The flip side is that most vehicle manufacturers are getting better at producing long-lasting high-quality vehicles. So, you can still probably get away with not having an extended warranty, especially if you don't plan on keeping your vehicle for very long. The manufacturers that had quality issues are now some of the best manufacturers out there. Manufacturing processes and quality control have made most major components significantly more reliable. So, the chances of an engine completely failing today are much less than an engine failing even five years ago, even if you factor in all the new technology and expensive sensors. But the chance is still there, and it can still cost you thousands of dollars.

It's just an insurance policy that you'll probably never use

When you look at it, an extended warranty is simply an insurance policy. It still holds true today like it did ten years ago that most people either don't use extended warranties once they get them, don't save as much money as the plan costs, or don't have a repair expensive enough to meet the deductible. The truth is that most people today still probably don't need an extended warranty.

High cost typically never gets recouped

There are some drawbacks to having an extended warranty. The first is the cost of the warranty itself, which you will probably never recoup. You can buy a $1000 extended warranty and never use it or you may use it five times to the tune of $3000. It's a gamble. And most of the time the odds are in favor of the house.

financing the extended warranty adds even more to the cost

Another drawback is the added cost of financing the warranty into your new auto loan. Most salespersons will tell you that you have to decide right there on the spot. That's not true. You have until your warranty expires to get an extended warranty. And sometimes manufacturers will even allow you to buy an extended warranty after your basic warranty has already expired. Don't worry if you don't get a warranty the day you buy your car. You'll get letters and offers from all sorts of warranty companies offering you warranty coverage for the next few years.

don't fall for the pressure; decline or negotiate!

Take your time. If you are being pressured to make a decision as to whether or not you want an extended warranty, just decline. You have time to make a decision. Or, if you know you want the warranty, negotiate it. Yes! You can negotiate the price of the warranty. Just don't let them sneak you into a different warranty with less coverage if you negotiate.

When you buy a car, the sales people will show you a sheet with average costs for replacement of certain expensive vehicle systems in order to get you to think you need the warranty. They will point out the cost of an engine replacement, transmission replacement, and drive axle replacement. But the truth is that these systems don't really fail all that often unless it's due to neglect, in which case the warranty won't cover repairs anyway. In most cases, any repair you might need will end up being relatively minor. How many people do you know have had an engine completely fail? A transmission completely fail? A drive axle break apart? Exactly. Most of the time your repairs will consist of something minor and relatively inexpensive.

extended warranties from the manufacturer is typically best

Which extended warranties are the best? We always recommend that you should consider getting a warranty from the manufacture of your vehicle. These warranties are usually transferable to a new owner and can be used at any dealership nationwide. You typically have the least amount of problems getting a component covered under these types of warranties, an easier time getting parts, and can be sure that your vehicle will be repaired using genuine parts made specifically for your vehicle.

third party extended warranties have a lot of limitations

Third party warranties are usually cheaper, but they are often limited in the amounts that they will pay, deductibles, and covered systems. You may also need to get prior approval before a repair is completed, which can be tough if you need emergency repairs. You may also have to take your vehicle to one specific repair location, which can also be difficult if you move across the state. These warranties often favor aftermarket or non Original Equipment Manufacturer (OEM) parts. That's not to say there's something wrong with aftermarket parts, but you should always get the parts that were made specifically for your vehicle if you can. The warranty's fine print will tell you exactly what components are covered and for how much time and mileage.

used vehicle extended warranties can be a good bet, but watch the fine print

Used car extended warranties are a bit more of a challenge. Because you don't know the history of the car, you may want to consider an extended warranty here. But you need to understand that the warranty term doesn't necessarily begin the day you get the car. You may buy a warranty that covers your vehicle for five years or 100,000 miles. But your car may already be three years old and have 50,000 miles. You may be left with only two years and 50,000 miles on the extended warranty as they typically cover total age and total mileage, not just the mileage and time since you've had the car.

what's the verdict?

There's no easy answer. You might want an extended warranty. You might not want an extended warranty. Before you make your decision, consider the age of the vehicle, whether it was the first model year after a redesign, the reliability of the particular vehicle, the amount of systems that you have in the vehicle, and the average repair costs for your vehicle. Don't necessarily believe those handouts that you get that tell you the average repair cost. Those are marketing gimmicks that typically factor in on the higher side. A total engine replacement on average may cost $8000 but may only cost $2000 for your car. Don't forget to actually research the warranty itself. You could get a stellar warranty or you could be left with a dud.