THE TRUTH ABOUT VEHICLE EXTENDED WARRANTIES

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Extended warranties are a funny thing. First and foremost, they are sold to make money. So, that means, the people who came up with them are betting they won’t be such a great deal for you.

There are many variables in your question. Those variables determine whether you should buy an extended warranty or not.

The first big variable … is the warranty offered by the manufacturer of the car or some after-market independent company. I would NEVER buy an independent warranty. Why? Because they have no vested interest in making you happy when a repair is in the “gray area” or questionable. Whereas manufacturers want to make you happy with the brand so you come back to buy more cars.

The next big variable is whether the car is new or used. Each kind of warranty has its own set of problems. Below I will examine both.

PROBLEMS WITH USED CAR WARRANTIES

I would NEVER buy a used car warranty. Why? Because of the “escape” clauses in almost all of them. If your used car warranty contains one of the following clauses, beware!

  • EFFECTIVE DATE – Some used car warranties actually go back retroactively to the date the car was originally put in service! Yes, as ridiculous as it sounds, you may buy a 5-year warranty on a used car that’s 3 years old and you theoretically only have 2-years of coverage! The philosophy behind that start date is that the warranty company is standing behind the car regardless of what happened before you owned it. BAD IDEA!
  • EXCLUSIONS – Many used car warranties exclude normal wear and tear, owner abuse and pre-existing conditions! Mmmm, I’d venture to say that on a used car, almost ALL problems will come in one of those categories. WATCH OUT FOR THIS CLAUSE!
  • DEDUCTIBLES – Many used car warranties have a “deductible” amount you pay per incident. That may not sound too bad until you run up against a problem that caused other problems. You may find the warranty company insisting that you pay an individual deductible amount on each item to be repaired! That could amount to thousands of dollars.
  • TOTAL COVERAGE – Many used car warranties state, in essence, “When the cumulative total of repairs equals the market value of the car, warranty coverage terminates.” THINK of what this means! As your car gets older, the value goes down significantly. Yet, repair costs accumulate. If you chart this out, you’ll see that you have diminishing protection in as downward curve that often does not last as long as the warranty period. In other words, you may buy a 5-year warranty and only get to use it for 2-years.

PROBLEMS WITH NEW CAR WARRANTIES

  • Keep in mind, that the only an extended new car warranty I would consider is one from the manufacturer that does not have a deductible, or where the deductible is very low (under $100).
  • The other major problem with an extended new car warranty is when it takes effect. For example, if you buy a 5-year extended warranty at the time of purchase, and the new car already comes with a 3-year warranty, you have double coverage for the first 3-years.

What are you really buying? In the example cited above, you are really only buying 2-years of coverage!

MY RECOMMENDATION

When you buy a new car, take advantage of the new car warranty. Save the extra money that you’d spend on an extended warranty. Then toward the end of the factory warranty, shop for a true extended warranty that starts when the factory warranty ends. In most cases, the manufacturer and other independent companies will solicit you at that time, offering all kinds of deals. Find one at that time! And here’s the best part, you’ll have previous warranty, maintenance and repair records to use should the warranty company try to challenge a claim based on “pre-existing conditions” or “owner abuse”.

 

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