Is An Extended Warranty Right for Your Car?

The quick answer is that if you’re a cautious type that wants as much peace of mind as possible, yes, an extended car warranty is right for you. But, in reality, there’s more to it than that. According to a national survey conducted by Consumer Reports, most of us – 95 percent of new- and used-car shoppers to be exact – would rank reliability high when looking for a car. But for some, just knowing that their car is proven to be solid isn’t enough. 

Those looking for more security go to vehicle service contracts, or extended warranties, to provide additional protection. These warranties help car owners to rest easy, knowing that whatever comes their way, they are prepared for any unexpected repairs. They require no risk; however, Consumer Reports found in a 2013 survey that car owners typically paid more for this additional coverage than they got back in direct benefits. 

“Extended warranties are a really horrible set of mathematics, and the reason people sell them is that they because they make a bundle on them in commissions,” says Dave Ramsey, a personal finance expert and radio-show host who has been upfront concerning the topic. “On average, you’ll pay about $1,500 on an extended warranty, and the average repair is $180. I don’t recommend buying extended warranties, ever. If you can’t afford a $200 repair on a car, then you can’t afford the car.”

What Ramsey would tell you to do instead is to create an emergency fund for repairs that you can use when needed. That way, if issues do arise, you are prepared, but if they don’t, you have your down payment – or more – ready for a new car! This is potentially much more than you’d be getting with an extended warranty. 

However, if you choose to take the extended warranty route, remember that any price proposed to you is open for negotiation. If you’re purchasing a car from an unreliable brand, an extended warranty may be right for you. You’ll find them available through dealerships, auto clubs, and insurance companies. You’ll find a variety of options, from length in time, mileage, coverage, and price. Be sure you thoroughly read the small print! That’s where they most often get you with specific limitations on repairs or where work can be done. 

Recently, General Motors began an extended warranty that provides bumper-to-bumper coverage for up to five years or 60,000 miles for Chevrolet and GMC vehicles and up to six years or 70,000 miles for Buick and Cadillac. In contrast, the typical warranty that comes with these vehicles, brand-new, lasts just three or four years and anywhere from 36,000 to 50,000 miles. Depending on the car, GM’s plans cost $1,000 to $2,000, and they must be purchased with a new car. The warranty is transferable, which is excellent for resale value, and the cost of a warranty can be financed. 

Though many other companies offer vehicle service plans, GM claims that it’s the only automaker to offer a true extended warranty. However, for vehicles sold in California, Florida, Missouri, Maine, Hawaii, and Minnesota, GM’s plan isn’t available. 

With AAA, you’ll find a vehicle service contract that combines protection and other services like trip reimbursements, battery replacement, and rental car coverage. Of late, AAA’s warranty sales have increased, and Consumer Reports has found that 30 percent of customers need at least one covered repair.  

So, to answer the original question, the wisest direction we would recommend is to forego the extra protection and buy a vehicle with above-average reliability. Keep it properly maintained, and keep a savings for those repairs that are unexpected and unavoidable. You can check our reliability ratings before buying a car, new or used, to help you make the best decision.