Extended Car Warranty: Do You Really Need It?

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When thinking of whether or not to purchase an extended car warranty, there are a number of factors to take into consideration. Learn when it makes sense…and when it doesn’t.

Just when you think you’re done negotiating on your car purchase, you’re hit with a number of “extras” you can also purchase—one of those being the extended warranty, also known as a service plan. But is it really something you need? In most cases, probably not.

When purchasing an extended car warranty doesn’t make sense

Expect a hard sell from the auto dealership salesperson to purchase an extended warranty on your new or used car. The markup they receive is huge—often 100 percent or more. While it’s all profit for them, it will cost you—hundreds or even thousands of dollars. Take some time before you buy to consider the following:

The manufacturer’s warranty.

Many auto manufacturers now offer four- or five-year—or more—warranties that can be good for up to as many as 100,000 miles.

How long you plan to have the vehicle.

If you only plan to keep your car for three or four years, then likely your manufacturer’s warranty is all you’ll need.

The car’s reliability.

Does the car you’re purchasing have a good record for reliability? The Consumer Reports National Research Center has found that five-year-old vehicles have fewer problems today than they did just five years ago. One-third fewer problems, in fact. And serious repairs were found to be rare. Research vehicle reliability ratings in the auto sections of JDPower.com or ConsumerReports.org.

Common repair costs.

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Repair costs vary between car makes and models so it’s a good idea to check prices of common repairs to see what your cost could be. If the repair costs are less than the cost for the extended warranty, then it is probably best to save your money for the repair should you ever need it.

Your auto repair budget.

Do you have enough in your budget to set aside money each month to put towards any future auto repairs? If so, then it might make more sense to keep your money in the bank in the event that you’ll one day need it, rather than shelling it out in advance.

When it might make sense to purchase an extended car warranty

If you plan to have your car for longer than the manufacturer’s warranty and find that the car you’re purchasing isn’t as reliable as it could be and often has costly repairs and you don’t have the ability to set aside money each month to pay for those repairs, then purchasing an extended warranty for your car might be a good option for you.

Pros and cons of extended car warranties

Keep in mind that extended car warranties don’t cover repairs for “wear items” such as tires, brakes or shocks. And, your extended warranty starts the day you purchase it, whether your original manufacturer’s warranty is still in effect or not. In addition, most warranties come with a deductible that you’ll need to meet before it kicks in to cover repair costs.

On the plus side, extended warranties can offer benefits such as towing, car-rental discounts and lost-key lockout services. And many are transferable to future owners, which could be a benefit to you when you sell your car.

When to purchase an extended car warranty

You don’t need to purchase an extended warranty at the same time that you purchase your vehicle. Often you can wait months or even years before you make the purchase so take the time to consider whether an extended car warranty is right for you. If you feel it is, be sure to shop around for the best deal and only purchase extended warranties that are backed by the car’s manufacturer (as opposed to those backed by independent companies or dealerships).

Check out Service Contracts: Should You Buy One for more information on extended warranties.

Source: Consumer Reports, Autoweek.com, JDPower.com, Bankrate.com
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