Should You Buy an Extended Warranty?

Should You Buy an Extended Warranty?

I've talked about this on the air many times, whether to buy an extended warranty or not. I get this question from a listener easily once a day, so let's go through it.

Are Extended Warranties a Good Investment?


I think an extended warranty on a car is a good investment. If you have not priced vehicle repairs lately, like a water pump or air conditioning compressor, you might be shocked as to how much they run these days. We all expect an engine problem or transmission problem will cost a lot, but the other more common repairs will cost you a bundle and, usually, one claim on the warranty will cover the cost of the warranty.

My rules about where to purchase a warranty are simple: from a good dealership. Going one step further, buy it from the dealership you are likely to use for service. This can shortcut your time and trouble in service since they are familiar with the contract rules and stipulations. Should there be a dispute on what is covered and what is not; the dealer you bought the warranty from has a vested interest in your satisfaction.

What if the dealer offers you a non-factory extended warranty?


For many years I recommended only buying the factory policy, in other words, the warranty backed by the manufacturer of the car. As time has gone on, I have softened my stance on this issue.

The real plus of the factory warranty is that it is good at any dealership that sells that brand. The downside is that the dealer has no control of gray areas. If the factory says a problem is not covered or is denied due to perceived abuse, the dealer's hands are tied. If you have a non-factory warranty, the dealer can call them and plead your case. The dealer is a good customer of warranty companies.

When Should You Buy One?


Timing-wise, if you want to buy a warranty, usually the time you buy the car is the best time. There are surcharges on most warranties if you wait to buy it later. In most cases, you can purchase a warranty on your car up to the time your vehicle is inside the bumper-to-bumper warranty period.

One big thing to know before you purchase a warranty is what time and mileage will work best for you. There are a lot of different combinations. Also, give thought to how much coverage you want. Generally, you can go from basic powertrain coverage, all the way up to plans that cover maintenance. The price, of course, goes up with the higher levels of coverage. You can also usually choose a low deductible amount, or save money on the cost of the warranty by paying a higher deductible.

Speaking of price, many times you can get a discount on the warranty just for asking. In a lot of cases, the amount you pay for a warranty is negotiable. Like everything else, it never hurts to ask! However, in recent years, some dealerships have been sued for not offering like warranties to different people at the same price. The allegation is discrimination. Still, it doesn't hurt to ask for 10% or so off the price.

Don't Believe the Ads You See


I warn you, too, that I don't know of any legitimate warranty company that will write a policy on a vehicle with 100,000 miles or more. There are a lot of companies who make the warranties on these mileage vehicles sound great, but generally, in the fine print, there are a lot of ways they can wiggle out of paying the claim.

CarShield does the most advertising, and I get the most questions on this company. Their ads are effective and convincing. However, if you look at the Better Business Bureau website under their name, here is what you find:

"Better Business Bureau is advising consumers to use caution when considering doing business with CarShield, an Auto Service Contract company." BBB has received a pattern of consumer complaints alleging misleading sales and advertising practices, failure to cover repairs, difficulty cancelling a policy and obtaining a refund, delays in taking and processing customer claims, sent harassing mail solicitations, and poor customer service."

In Closing

In summary, I recommend you buy a good warranty from a good dealership that will stand behind what it sells. I have seen many cases where extended warranties have saved people from financial ruin.

Ready: The Factory Warranty Repair Process At Car Dealerships



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Editor's Note: This article was updated 2/10/21.