Should I Buy an Extended Warranty for My Vehicle?
When I first started my career 30 plus years ago, I was dead set against recommending buying an extended warranty for a vehicle. Between the cost of the warranty, the fine print on what is and is not covered, and the actual cost of fixing most car issues, it seemed highly unlikely that the owner would come out ahead. However, today, with the rising costs of potential failures on modern cars, an extended warranty is something worth considering. Here are some things to understand:
Understanding Extended Warranties
First and foremost, it’s important to understand that an extended warranty is essentially an insurance policy that you are purchasing. The company offering the warranty is betting that the price you pay for the warranty will exceed the amount they will be paying for repairs. There are a few reasons why this can happen:
- The vehicle may be of good quality and not require many covered repairs during the warranty period.
- You may decide to sell the car before the warranty expires, reducing the likelihood of experiencing many repairs.
- The car may be involved in an accident and deemed a total loss, in which case the extended warranty company does not have to pay any claims.
- As with the the surprisingly significant quantity of gift cards that are never redeemed some people forget that they purchased an extended warranty and never notify the service provider to call in for authorization on repairs.
While the odds may be against you, I believe the odds of an extended warranty making sense are higher now than they were ten or twenty years ago.
Factors to Consider
Unexpected Repair Bill
Can you afford a $3000 repair bill without significant financial trauma? With the increasing complexity of cars and the integration of computers and technology, a single repair can easily cost several thousand dollars. If you are not prepared to make such a repair without suffering a significant impact on your lifestyle, an extended warranty may be a good option.
Reliability Record
Do you own a vehicle with a less than stellar reliability record? Some people choose to own and drive cars that are not known for their reliability. If, for some reason, you really want to own a Jeep, for example, an extended warranty may make sense. Jeeps historically have not had the best reliability record, but if the off-road capabilities are what you desire, an extended warranty can provide peace of mind.
Advanced Technologies
Does your car have many safety and engine performance technologies? Many high-end cars have dozens of systems that can be expensive to repair. Whether it’s a car equipped with a system like LiDAR or technology like a turbocharger or supercharger to maximize performance, the repair cost of one of these systems could easily justify the price of an extended warranty with a single repair.
Ownership Duration
How long do you plan on owning the vehicle? If you are committed to keeping a vehicle for several years beyond the factory warranty, an extended warranty is something to consider. As a vehicle ages and accumulates more miles, the chances of something breaking increase. Having a good extended warranty can save you from unexpected repair bills. Additionally, some extended warranties offer additional features such as emergency roadside assistance and rental car reimbursement, which can be valuable.
In conclusion, an extended warranty may be worth considering when purchasing a car, even though they can cost anywhere from $3000 to $5000 for a decent warranty. Next week, I will discuss what to look for in an extended warranty and where to find the best options.