Most consumers spend more on extended warranties than they get back in repair savings, according to a Consumer Reports reader survey. On average, buyers paid $1000 and got $700 back in the amount of money they saved in repair costs.”Extended warranties sell costly ‘peace of mind’ for repair nightmares that probably won’t occur,” said Rik Paul, automotive editor, Consumer Reports. “Sellers know what tends to break, and in most cases consumers are betting against the house.” The only one with a peace of mind is the dealer as he tallies up his profits. Consumer Reports instead recommends putting the money you would have spent on an extended warranty into a money market or mutual fund to insure against the unlikely event of big repair costs from parts failure.
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@SacraBos: Ahh, yes, the infamous AXOD/E. An absolutely wonderful piece of engineering, if you happen to run a transmission repair shop.
@joemama321:
That was an informed, thoughtful post. You’re clearly on the wrong website.
As with most purchases, your mileage may vary. The first waste that LOTS of people get caught by is that they buy the extended warranty and then succumb to some salesman’s siren song for a new car before their initial manufacturer’s warranty runs out. If you’re addicted to new cars and buy a new one every 3 years or so, you’ll never make an extended warranty pay.
Another issue is buying into the dealership hype. Either research the available warranties on your own BEFORE you subject yourself to their sales pitches, or just buy the car and research the warranty later. I realize that the problem with this approach is that many people can’t afford the car in the first place, so the only way they’re going to get an extended warranty is on credit, and it’s easier for them to roll it into the note and think that it “only” costs them $30/month. The “average consumer” gets sucked in by that easy financing.
What I’ve always done is wait and see. If your car proves largely trouble-free during the manufacturer’s warranty AND you’re doing the smart thing by saving up for the next one all along, you might choose to skip the extended warranty. (We’ve never bought one for our Subarus, but then again they’ve got a deserved low-maintenance reputation.) If you have some problems, or if you hear about long-term durability problems with your make/model during your initial warranty, consider buying an extended warranty if you want to keep your car for years, or trading it in for something with a better reputation.
Another thing to look out for with extended warranties is that some are transferable, and others are not.
If you DO buy a lot of new cars, see if you can transfer the warranty to another party. I know that HondaCare, which is the extended warranty provided by Honda, is transferable to at least one party. This might be worthwile if you sell it privately to someone.
depends on the car i think. i had an extended warranty on my 89 ford aerostar that, since it turned out to be a piece of shit, paid for itself many times over.
as far as new car warranties, hyundai’s is also transferable.
Ask my sister that just had her motor replaced on the Saturn I sold her. I bought the warranty and it worked out just fine. Rather than the 2000.00 bill she would have been sitting on.
@SaveMeJeebus:
Facts please. The Import is better argument has been thrown out the window lately.
Seems a few folks here have had troubles with VW & Audi and lately I have been reading about quite a few complaints with Toyotas and Honda Civics. ie: broken tailgates, sludge in camry motors, Civics that won’t stay in 3rd gear such as my 07 Civic Si.
please state your case.
Can I bankroll that mutual fund/money market with my car loan?
Didn’t think so.
@Tracy Ham and Eggs: @JustAGuy2:
Please tell that to the myriad of doctors I tried to see and pay with cash when I didn’t have insurance for a brief period of time. Every single one told me that they only saw patients with insurance coverage, and when I finally begged a doctor into seeing me and paying cash up front, he spent ten minutes with me and suggested that I find a different doctor (without telling me anything about my problem). Now that I have insurance I have been able to see a doctor and problem is currently being resolved.
@bob9:
Its a silly argument… everyone has anecdotal evidence pointing one way or another. Some people have had crappy civics and other people drove their Festivas 300,000 miles.
I don’t think domestics are crap cause I’ve had two ford leave me on the road, and imports aren’t perfect because I drove a Mercedes 180,000 miles without anything going wrong. There are just as many people who have stories opposite of mine.
The next car I’ll buy, I’ll get which ever one I like most – American or otherwise. I recommend you do the same.
News Flash: Product costs less than its retail price. More at 11!
@rewinditback: Prime rate is 6.00% right now so the dealer’s buy rate is likely around 6.5%. Dealers like to make at least a 2.00% spread, which means the best rate the customer/buyer will get is 8.5%. That means the dealer will probably offer you a rate of a couple points higher so he can negotiate down as far as 200 basis points, still make his 2 point spread and let the customer leave feeling like he has “negotiated” a good deal for himself. When negotiating rates with dealers, just tell them up front that you want to see their buy rate sheet and see how they react. I’ll bet you don’t get to see it!
the correct term is service contract, not warranty.
test
oookay people. Here it is: Extended warranties are good if you are the type of person who does not put away money for repairs. For example, you spend $1000 on an extended warranty and then use only $700 during the lifetime of the contract. Great deal! On paper, it looks like a loss, but if you didn’t put away $100 month, then when your car needed repairs, you wouldn’t have had the money.
Again, if you forgo the extended warranty, then put away at least $100/month in the bank and don’t touch it.
I am sure that the story is true, but in my case, my e.w. has more than paid for itself. It cost an extra 900$ on a 2003 Civic Hybrid and I had to get the struts replaced once and part of the shifter. (Plus several little things went bad). Easily more than 900$ worth of repairs. The e.w. is about to expire and I am being offered an additional 3 years for 1200$ and I am seriously considering it. This was the first year of a new type of car for Honda, so it seems that much could go wrong. Whaddya think?
@samurailynn:
Did you show ability to pay? Coming in and saying “I need to pay cash because I can’t afford insurance” is different from coming in and saying “How much will this cost? Well, here’s my credit card, pre-authorize what you need.”
I can’t begin to count the ways I’m happy that I bought an extended warranty. I paid about $1000 on my new Mazda in 2004 to bump up to a 10 year/100,000 mile warranty.
I’ve since saved at least $4,000 in repair costs, and that’s before you consider the peace of mind that I’ve had as a result as well.
Maybe it’s just because I put more miles on my car than some people, but it was not a ripoff in any sense.
@JustAGuy2: I walked in with cash in hand and said I would pay up front.
@BarryT: Reference my earlier post- especially on first year of car model. Now you have to gamble that the $400 per year you’ll pay is less than what it will cost to fix per year in warranty-able type repairs. Is it worth it?
Buying additional coverage for your car – whether it’s a maintenance plan or extended warranty – is only cost-effective if you put much higher-than-average mileage on it in a given month. I bought a new 2008 Focus a week ago, and seriously gave some thought to each plan I was offered by the dealership, and decided that each of those plans would be cost-effective for me if I commuted an additional 20 miles to work every day.
That all said, those plans are definitely not a waste in all cases. There are some people who will clear the mileage-side of the manufacturer’s base warranty much faster than the average consumer, or will have shorter intervals between maintenance periods, and would benefit from having that coverage on their investment.
I bought a new 2002 Dodge Neon (paid cash) for my daughter when she graduated from HS. I figured she’d wind up driving the car for at least the duration of college and decided an extended warranty might be a good idea. As I bought the car from family friend who owed the Dodge store I paid “dealer cost” for the warranty and it’s paid for itself several times over. That Neon has practically been rebuilt since the manufactures’ warranty expired, it has a new (not rebuilt) engine, transmission, and air conditioning. I’m in the market for a new vehicle and I’ll certainly consider buying an extended warranty for this next purchase as well.
@BGGA: What was the markdown on the dealer cost?
I think that it’s very important to also do research on the warranty company before purchasing an extended warranty.
One of my friends has had a great experience wtih the extended warranty her family purchases for their new (to them) vehicle.
I, on the other hand, bought an extended warranty lumped into the car payment (Stupid, I know.) … and after that company replaced the transmission with a junkyard part, we had to pay out of pocket for the flush and diagnostic (which should not have happened). AND, when that transmission died three months later, even though it was guaranteed for a year, we were screwed, since the warranty company went bankrupt and wasn’t paying the companies that it worked with and etc.
Do your homework on warranty companies and their reputations while you’re checking for the best deal. I hope that no one else gets screwed like we did. It was an “Ultimare”, indeed.
Anything with the word car is a ripoff!!
So I actually sell Extended Warranties for Cars for a living. So I will try to fill in the gaps I see you guys missing.
1) Just cause it is from a dealer does not make it a reputable warranty company… I have heard too many stories of people buying warranties from a dealer than the warranty company going out of business. Than the dealer not honoring the warranty.
2) When looking for an extended warranty company find one that is actually backed by an A rated insurance company. This guarantee’s your money just in case something happens to the company. The problem is a lot of people don’t know the backer. Make them actually find out the info and check out the backer. Also, check the warranty company.
3) Wait until you have 1000 miles of your factory warranty remaining till you get one. Most extended warranties have a 1000 mile wait period.
4) Bumper to Bumper coverage should be exclusionary coverage. Meaning it should tell you what is NOT covered. This should just be normal maintenance items. You can’t get this level of coverage typically over 60k miles.
5) Used car coverage varies widely. I have seen some cover almost everything but the computers. I have seen some not cover shit. Take the contract to a local mechanic to check out first.
From family experience I would have to say to purchase an extended warranty on a used car. My sister bought a 2000 Hyundai Tiburon and did not buy the extra warranty. About 3 or 4 months after purchase her manual gear shift went out and it cost her $3000 that she is still paying off to this day.
In general, if a company is selling something it is for profit. If warranties ended up costing companies more than what they charge for them, they would not sell them, it would be pointless. What you are buying is peace of mind. You know that if your car breaks, its taken care of and you wont have that surprise 2k car repair bill (or even 500 dollar repair bill). Yes, it is a risk, but you also risk not having the cash when you need a repair.
I’ve effectively used almost all the extended warranties I bought on used/new cars. The first one that was very handy was on a ’95 Thunderbird which turned out to have been a flood car and we got Ford to repurchase it. Second one was on a Cadillac Catera on which something expensive broke every three months. Definitely paid for itself. We haven’t had a chance to use the third yet on an ’06 Caravan but I think it cost $800 and runs 7 years 100K, Yes, I am betting 5 years into the car’s life the A/C will fail and that’s your money right there. I think extended warranties are only a bad deal if you have a bad warranty company , the car is bulletproof reliable, or you are making a bad financial decision anyway by trading in the car after only 4 or 5 years. For those of us who drive our cars into the ground, generally a good deal.
My family and I have gone through a bunch of Dodge Grand Caravans. We know how much stuff breaks. Last time I got nearly 50% off and free oil changes for two years. I’ve come-out way ahead already and I still have a few years, I came-out nearly even after the first big problem. It pays to know your car.
@mzs:
Why would you keep buying Caravans after the first one? (I mean seriously, I would have thought your family would have learned the lesson.)
@TechnoDestructo: Well, after you take all the dealer incentives and decent negotiation on the price, the Caravan plus the extended warranty is still way less than an Odyssey with similar equipment, without the warranty. And some years of Odyssey ate the transmission because the early one was engineered for a lighter vehicle.
@DavidS722: I second that. Just head to Edmunds.com like in my case and go to your car forum,mine is Honda where there is numerous people recommended a salesman in an Ohio dealer with the cheapest Honda ext. warranty. Just fax all need paperwork with credit card number to him for the charge.
@GearheadGeek: Yeah, but Dodge never bothered to learn the lesson.
Also every Caravan I’ve ever driven (only first and 2nd generation, IIRC) has been inferior (comfort, handling and/or feedback from the road) to every other van of any kind (or age) I have ever driven. Minivans and full-sized vans.
@SavageATL: I feel the same way, we drive cars till they die and have found the extended warrentys to be very useful in the past.
I`m scared to drive cars because I don`t know how to drive.
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