Should I Buy an Extended Warranty?

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You’ve spent hours, days, or maybe weeks researching, shopping, and negotiating for your next vehicle. Finally, you’ve picked out the right car, worked out a reasonable price, and pulled the trigger on a deal. It feels like all the big decisions have already been made as the salesperson shows you to the Finance and Insurance office… and then the F&I manager drops another choice at your feet: Do you want to buy an extended warranty?

This question can be daunting if you haven’t planned for it, especially if you’re worn down from the car-buying process. But doing some research beforehand will be a major help, just like it was when you were deciding which vehicle was right for you.

What Is an Extended Warranty?

Just to be clear, an extended warranty (sometimes called a service contract) is repair coverage that begins after the manufacturer’s warranty—normally bumper-to-bumper coverage—has expired. It’s important to know that you do not have to buy an extended warranty at the same time you purchase the vehicle. The extended warranty can be bought at any time, although buying one after the manufacturer warranty expires will be significantly more expensive than buying one while the manufacturer’s warranty is still good.

Do I Need One?

To be sure, extended warranties can provide valuable peace of mind. That being said, most consumer advocates advise against buying extended warranties, largely because they often provide more coverage than the typical driver needs. In a 2013 survey, the Consumer Reports National Research Center found that 55 percent of people who purchased an extended warranty never used it. And for those who did use it, the average cost of repairs was hundreds of dollars less than the price of the extended warranty. That survey, which polled 12,000 people, also found that less than one-quarter of respondents said they would buy another extended warranty.

Vehicles are becoming more reliable every year, which means that extended warranties are becoming less necessary. This is especially true if you don’t plan to keep the vehicle a long time. If you want to buy a new car every three or four years, skipping the extended warranty is a no-brainer. On the other hand, if you plan to drive your vehicle for hundreds of thousands of miles, the extended warranty makes more sense.

You can also prepare for uncovered repair costs by saving the money yourself. Financial expert Dave Ramsey suggests that each month you save half of the money you would have spent on an extended warranty payment in an account that’s earmarked for potential repairs. Chances are good these savings will cover whatever needs to be fixed. And if no repairs are needed, you’ll end up with a chunk of savings to invest elsewhere.

I’m Happy to Pay for a Little Peace of Mind

The best reason, by far, to purchase an extended warranty is peace of mind. If skipping the extended warranty will make you lose sleep or cause you anxiety every time you get behind the wheel, go ahead and buy one. Peace of mind is priceless.

If you do take the extended-warranty road, there are a few key pieces of information you’ll need. First, what’s covered under the warranty? If you do want to take the extended warranty road, there a few key pieces of information you’ll want. First, what’s covered under the warranty? Chances are it won’t cover most items that tend to wear out quickly, things like brake pads and calipers, belts, wheel cylinders, fuel pumps and water pumps. But you should at least be aware of what the warranty does and does not cover, and if the “does not” list is too long, the warranty may not be worth it.

You also should find out who will cover the initial cost for covered repairs. Some extended warranties will pay the mechanic directly, while others will reimburse the consumer after he or she has already paid for the service. And you’ll want to know who stands behind the warranty. Getting an extended warranty backed by the manufacturer allows you to get repairs at any dealership, but an extended warranty backed by the dealership where you bought it may cover only repairs done at that dealership.

If you do decide to buy an extended warranty from a third party, check out this list of the top 35 extended auto warranty companies.

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