You’ve finally done it! The Last Decision: Extended Warranties
- You’ve gone through the test drives, the sales talk, the self-doubt and the sleepless nights – plus the mountains of paperwork. But you did it. The car of your dreams is yours. It’s yours and it’ll be perfect forever.
- “But what if it’s not?” asks the small voice in your head, echoing the salesman who’s sitting across from you. “What if it’s not perfect forever? What if something terrible happens to it? You don’t want to be the one to pay for that, do you?”
- You don’t, so you fork over another small mountain of paperwork and another thousand dollars. You are now the proud owner of one of the car industry’s biggest cash vacuums: the extended warranty.
- The concept of an extended warranty is simple. You give the insurance agency a loan of roughly a thousand dollars, and they’ll cover any injuries your car sustains for the next few years. You’re supposed to be getting the better end of the deal. They’ll tell you that accidents are frequent and expensive, so paying only a thousand dollars is saving you money. More than 55% of participants in a recent consumer report said that they never used the extended warranty they had bought. For those who had been given reason to use it, the cost of the repairs averaged $837, leaving them with a sizable net loss.
- As with anything else, there are a few legitimate reasons to invest in an extended warranty. For one, if you’re buying a used car, you might want to use the money you save on the actual car to pay for some extra insurance. Used cars are twice as likely to malfunction as new ones, especially since you don’t know how well the past owner treated them. It’s also a better idea to insure cars that have more of a history of expensive maintenance – BMWs, Chryslers, Dodges. On car brands that tend to be more reliable – Hondas, Subaru’s and Toyotas – you can give the warranty a skip.
- If you do decide to buy an extended warranty, there are two key questions you should ask yourself. First, are you getting the best deal you can? One-third of the people surveyed reported attempting to negotiate the price down and saved $235 on average. Also, you might think it’s a better deal to buy your warranty with your car, but almost all cars come with three years of manufacturer’s warranty. Don’t pay for something you’re already getting for free. Read every line of the contract to make sure you’re getting your money’s worth.
- Second, are you sure you’re not being scammed? Extended warranty scams are easy to pull off. Anyone who knows how to put a logo at the top of a letter can send you a message from your “insurance provider” in the mail. The letter informs you that your warranty has expired, and you need to buy it again. You send them a check. A foot-thick already-signed contract comes back. Then, the minute you find yourself in trouble, they’re nowhere to be found.
- The best method of defense against a scam like this is to do your research. Call your insurance provider to verify that the offer is real. While you’re at it, you can double-check that your warranty hasn’t ended. Then, find out when it will, so the next time you get a letter like that you can shred or trash it without any worries.
- More than half the time, buying an extended warranty means throwing your cash away. Major breakdowns happen far less often than you’d think, and minor accidents usually cost less than the price of the warranty. If you want the extra security and breathing room that comes with the extended warranty, it may be worthwhile in a few instances. Just always remember to make sure you’re not spending more money than you need to, and verify you’re not paying for something you could get for free.
- Most important, double check everything by calling your insurance provider and reading all the fine print. You may be able to come out of this having saved money on an extended warranty.