Before the car dealership gives you the keys to your new or used car, they will almost certainly try and sell you an extended car warranty.
What should you do? Does it ever make sense to buy an extended warranty or service contract? Let’s dig in a little deeper and see whether or not it makes sense for you.
Is an Extended Car Warranty Just a Money Grab?
Some people assume that extended car warranty offers are just a way for dealerships to squeeze a few extra dollars out of their customers.
But the truth is more complicated than that. It’s true that dealerships have run the numbers, and they sell extended car warranties because they are, on average, profitable. However, that does not automatically mean they are a bad deal for you.
You need to look carefully at what the warranty covers. On a new car, the standard manufacturer’s warranty likely already covers most of what the extended warranty offers. An extended warranty sometimes makes more sense for a used car, but the devil is in the details.
What conditions does the extended warranty cover? And how would your personal situation be impacted if one of those covered conditions happened to you?
3 Factors You Should Consider
Before deciding to buy or decline the extended car warranty, you need to consider three factors:
- Your personal driving history
- The unique car you’re buying
- Your personal financial situation
It’s impossible to make a blanket statement about the value of an extended warranty because so much depends on your personal circumstances. Let’s take a closer look.
Your Personal Driving History
Do you have a history of cars you own breaking down? Have you noticed that you often get stuck with hefty repair bills?
If this sounds like you, it is probably worth it for you to invest in an extended warranty. Some people are just harder on their vehicles. If you know that you’re one of these people, make the smart choice. This decision isn’t about pride, it’s about money!
On the other hand, are you someone who is meticulous about keeping up with your car’s maintenance? If you’ve never found yourself holding a big unexpected bill from the repair shop, then an extended warranty might be a waste of money for you.
Your Unique Car
What kind of car are you buying? Does your model have an excellent reputation for reliability, or does it have a reputation for breaking down frequently? Do some searching online and find out what other owners have experienced.
It might not make sense to buy an extended warranty for a car with a stellar track record for dependability and longevity.
Also take into consideration the condition of the unique car you’re buying, and how many miles it’s been driven. The more miles a car has when you buy it, the higher the chances that it will need an expensive repair at some point in the future.
Your Financial Situation
The average cost of a car repair is $200. The average price of an extended warranty is between $1,000 and $2,000.
If your car needs a trip to the mechanic on any random day, can your budget handle a $200 surprise?
With an extended warranty, you are essentially prepaying for repairs for a certain period of time. If a $200 repair bill could bomb your budget for the month, it might make sense to roll those expenses into your regular payment with an extended car warranty and have a more predictable, and less stressful, experience.
The Bottom Line on Extended Car Warranties
For most people, skipping the extended warranty is the best financial move.
However, you need to think about the combination of your personal driving history, the car you’re buying, and your personal financial situation. If the combination of you and this car could result in a higher than usual number of mechanical issues, that warranty might be a good idea.
Try to find the best balance for your situation, and create peace of mind for yourself that you’ll always be able to keep your car on the road no matter what life brings you.