Money Talks, So Should You

Is it worth it: Extended automobile warranty

Clint Williams
by Clint Williams, Dimespring Contributor

When you buy a new car, the sales pitch doesn’t stop with the vehicle.

“Don’t you want to consider rustproofing and undercoating to protect your investment?” or “Our $299 paint sealant will protect your car’s surface for years and years.”

And the continuing sales pitch will almost certainly include a push to buy an extended warranty, or extended service, plan.

The issue

An extended warranty is repair coverage that kicks in after the typical manufacturer bumper-to-bumper warranty has expired — typically after 36 months or 36,000 miles. Most cars today are also covered by a powertrain warranty that extends as long as 10 years or 100,000 miles. Extended warranties are sold — for $1,000 or more — with the promise they will cover most major breakdowns beyond the warranty period.

READ: What questions should I ask when buying a car?

The breakdown

They don’t make cars like they used to — they make them much, much better. A J.D. Power and Associates survey released earlier this year found dependability improved 13 percent from the year. The study surveyed owners who bought a new 2009 model-year vehicle. The survey also found 25 of 32 brands have improved in dependability from 2011, while only six have declined and one has remained stable.

Cars routinely go 100,000 miles with no major issues, and with proper maintenance — and a little luck — 200,000 miles is increasingly common. You will likely grow sick of driving your car before it really breaks down.

In a survey of more than 8,000 readers by the Consumer Reports National Research Center, 65 percent of those surveyed said the cost of an extended warranty was greater than the benefit. Respondents said their average cost was $1,000 and average benefit was $700, according to “Consumer Reports”.

READ: Will I get anything back on my tax return for buying a car?

The verdict

It’s a much better bet to take the $1,000 or so the car dealer wants for an extended warranty and put it in a designated “car repair” savings account or money market mutual fund.

What ever you do, don’t feel compelled to buy the extended warranty while the new car smell still lingers. Wait until the bumper-to-bumper warranty is about to expire.

The Better Business Bureau offers these tips for shopping for extended auto warranty contracts:
 
To find trustworthy auto warranty companies, consumers can check out Business Reviews online at the Better Business Bureau website. Read your manufacturer’s warranty and contact your dealer or manufacturer to ensure that you are not purchasing duplicate coverage.

When considering an extended service contract or any other type of telephone solicitation, insist on getting a contract in which all terms and conditions are clearly explained before signing up or providing credit card or other payment information.

 

Clint Williams is an Arizona-based freelancer for DImespring. He has written for the Arizona Republic and the Atlanta Journal-Constitution.