Extended Warranties - Good Idea Or Not?
Should you buy an extended warranty along with your next new car? The answer is, maybe. Before you come to any decision, you should consider the following points:* Be sure you're clear about the different types of new car warranties.
All new vehicles come with a so-called "basic" or comprehensive warranty that covers pretty much everything from the cigarette lighter to the sunroof - plus a secondary "powertrain" warranty that often lasts longer, but which typically only covers a few major components such as the engine, transmission and axle/transaxle. An extended warranty typically picks up after the basic or powertrain coverage runs out, extending the coverage by an additional period of months/total mileage.
* Some new cars come with factory warranties are much better than others - making an extended warranty less necessary.
There are several manufacturers who currently offer basic, or "comprehensive" warranties that last as long as five years or 60,000 miles and powertrain coverage that lasts as long as 10 years or 100,000 miles - compared with some others whose basic warranties run out in as few as three years and 36,000 miles - and powertrain coverage that's only good for five years or 60,000 miles.
If a manufacturer's new car warranty coverage is extremely comprehensive and long-lasting - and especially if you are pretty sure you'll be trading in the car before the coverage runs out - an extended warranty might be a needless extra expense. On the other hand, if the factory warranty will run out years before you plan to sell or trade-in the vehicle, it might be a wise decision to take out the extra coverage, particularly for major components such as the engine and transmission.
A new/rebuilt transmission can easily cost $2,000 or more; a replacement engine two or even three times that amount. While such major failures are not commonplace, they can and do occur. The "up front" cost of the extended warranty is almost always less than the "down the road" cost of a major repair.
Weigh the cost of any potential repair against the cost of the extended warranty coverage - and consider both in the context of how long you plan to keep the car vs. how long the factory warranty coverage will last.
Also take into account that the new car warranty coverage's allowable mileage may run out before the stated time interval - depending on how far you drive each year. For example, if you drive 15,000 miles annually, a factory three-year/36,000 mile basic warranty could run out in just over two years instead of three. Keep this in mind as you consider whether to purchase the additional coverage an extended warranty provides.
* Some brands/models of car are better-built than others.
Though new car quality is much better now than it has ever been - and specifically, there's much less disparity between import brand and domestic built cars - it's still true that some brands (generally) and some models (specifically) are more trouble-prone than others. Or have specific components that have more problems than average.
The decision to buy an extended warranty or not is basically a matter of evaluating the odds you'll need the coverage - based on the recent track record of the brand of car (and specific model) you are considering.
Check Consumer Reports buyer's guides for their recommendations; review JD Power & Associates customer satisfaction surveys - and check the manufacturer's record for recalls and defects by surfing the National Highway Traffic Safety Adminsitration's web site at www-odi.nhtsa.dot.gov/cars/problems/recalls. You may also want to check Internet owner's groups and online bulletin boards for any hint of potential problems with the car you're looking at that haven't yet percolated to the surface or been acknowledged by the manufacturer or investigated (yet) by NHTSA.
* Some extended warranties are good; others not so good.
Before you sign anything, be sure you carefully read and understand the terms of the coverage offered - in particular, any exclusions or limitations that could provide an "out" in the event you need to file a claim. Sometimes, for example, the warranty will specify that all recommended service work must be performed at an "authorized" dealer (as opposed to an independent shop or by the do-it-yourselfer) for coverage to remain in effect. You may need to provide receipts/invoices (with dates) for any and all related work that was done - including things like routine oil changes.
Be wary of extended warranties not backed by the vehicle manufacturer (GM, Ford, etc.). While so-called "independent" or third-party warranties may be legitimate, it's also possible the issuing company may not exist several years down the road. A major automaker like GM or Ford, on the other hand, is not apt to disappear - and more likely to honor its commitments.
* For used cars, an extended warranty offers more than just coverage.
While you may never have a problem, for some buyers, knowing "up front" that if a problem does develop, the cost of the repair will be covered under the warranty can be well worth the additional expense of purchasing the extended warranty. If you know the car was regularly serviced - or that it's a make/model of car known for better-than-average reliability - you may decide to skip the extended warranty, since the odds are in your favor. But if you don't know the car's service history, or it's a make/model that has been known to have some problems, having that extra margin of coverage can be worth every penny - especially if it helps you feel better about your purchase.
Finally, remember that you can haggle with the dealer on an extended warranty as a condition of sale or part of the deal - just as you might an extra-cost option like air conditioning or a sunroof. This goes for new as well as used vehicles. It can't hurt to ask - and getting them to throw in an extended warranty could be worth a lot more to you down the road than an upgraded stereo system or alloy wheels.
