The Pros and Cons of Extended Auto Warranties

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 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 nearly so simple since vehicles have made leaps and bounds in reliability.

Vehicles are complex today

Today's vehicles are a complex web of software and mechanical engineering. What before could have been an easy-to-diagnose problem today involves tracing steps through two, three, or even more systems and checking for proper operation of software. 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 Freon, and that you had power to everything in 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.

Vehicle Cost & options can influence your decision

Today, you may wish to consider having an extended warranty if your vehicle cost a significant amount of money. What is significant? It depends. 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 be a pain in the neck to repair and can sometimes break the bank, not to mention take months to repair. We've known of some hybrid vehicles to be in the shop for three months or more while the dealership tries to track down the problem. And that's under a warranty service!

Manufacturers are building better cars

The flip side is that most vehicle manufacturers are getting better at producing long-lasting high-quality vehicles. So, you probably can get away with not having an extended warranty if you don't plan on keeping your vehicle for very long. The manufacturers that had quality issues are now some of the better manufacturers out there. Manufacturing processes and quality control have made most major components much more reliable. So, the chances of an engine failing today are much less than an engine failing 10 or even 20 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

When you look at it, an extended warranty is simply an insurance policy and most of the time we don't use insurance. And 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 do not need an extended warranty, but it can be a little peace of mind if you have a first model year.

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.

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.