We’ve all been there. You’re in the car dealership and you have just finished negotiating the purchase of a new car. (New or used it’s new for you.) You’re excited and can’t wait to drive it off the lot, but first you have to get past the high pressure sales pitch to buy an extended warranty. Your salesman just spent the last hour or so telling you what a great car you are buying and extolling the virtues of its reliability and now some other person is sowing fear about all the ways your new car can break down. Should you buy the extended warranty? The answer is: It depends.
Nerdwallet.com says that “many people who buy an extended warranty either don’t need it or will never use it.” A Consumer Reports survey found (not surprisingly) that “car owners typically paid more for the coverage than they got back in direct benefits.”
If your plan is to be driving a new car in less time than the length of the warranty, then absolutely you should take a hard pass on the extended warranty. A three-year, 36,000 mile bumper-to-bumper warranty is pretty standard these days on almost all new cars. Furthermore, many new cars have powertrain warranties that are good for five years or 60,000 miles or even longer. (The power train includes the critical components that produce the power for a car and deliver it to the wheels. These parts include the engine, transmission, differential, axle shafts, and, depending on whether a car is front-wheel, rear-wheel, or all-wheel drive, the transaxle, driveshaft, and transfer case.) Because warranties are transferable many used cars are still covered by the remainder of that original warranty.
Bear in mind that warranty details and the car parts covered can vary a great deal from plan to plan. They don’t typically cover wear-and-tear or routine maintenance items such as tires, oil changes, brake pads, tires, and air cleaner filters.
If your plan is to drive your car until “the wheels fall off” then you may want to consider an extended warranty. U.S. News and World Report advises that “you’ll want to look at the predicted reliability of the vehicles you are considering. If you see low scores, that’s a hint that an extended warranty might be a good idea. Cars with high marks are less likely to need costly repairs. Predicted reliability is reflected in…new car rankings and reviews [found online]. They’re a great place to start when you are doing your research.”
Another warranty consideration has nothing at all to do with the vehicle, but everything to do with you. Are you the type to start worrying about what might break on your car the day after the manufacturer’s or dealer’s warranty has expired? Many car buyers opt for the extended warranty as an investment in peace of mind. They look at it as another form of insurance. Financial expert and radio host Dave Ramsey believes that if you have consumer debt you should have a starter emergency fund of at least $1,000 and then once you’re out of debt you should beef up that amount to save three to six months of expenses in a fully funded emergency fund. If you have the discipline to set aside money in an emergency fund, you may not need an extended warranty. With an emergency fund, in essence, you will be self-insuring against your car breaking down.
If you are going to buy an extended warranty, when is the best time to buy? While you are in the dealership you will be pressured to buy the extended warranty then and there to “get the best deal”. However, truth be told, you can buy an extended warranty at almost any time provided that you have not racked up exceptionally high mileage on your car. Nerdwallet.com points out that “many people buy an extended warranty when they buy a new car and that warranty doesn’t even go into effect for three years!...Consider waiving the extended warranty at the time of purchase. Then, as your car approaches its third birthday, look into the extended warranty. You’ll know two things by then that you didn’t when you bought the car new: how much you like it and how troublesome it’s been. Plus, you can shop around for the best price from the comfort of your home.”
At the end of the day, the best advice about buying an extended car warranty (if you choose to do that) is the same as it is for any other major purchase—do your homework in advance (Autotrader.com says “sitting in a dealership’s business office as you sign off on your new car purchase is not the time to be wondering, ‘Do I need an extended warranty?’”), know what is covered, and know what the deductibles are.