Extended Warranties: Needed or Not?

Everyone that's bought a car in the last 30 years or so has been pitched an extended warranty. When the car is brand new, the thinking is usually that you've got plenty of time to make that decision later.
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Everyone that's bought a car in the last 30 years or so has been pitched an extended warranty. When the car is brand new, the thinking is usually that you've got plenty of time to make that decision later, and you're not sure if the salesman is just trying to make a little more money from you. If it's a used car, the mindset is centered around essentially the same thing: not believing, or not being sure, that an extended warranty is something that's really needed. That's not always the case, strictly speaking. The salesman may get an additional commission for selling you a particular brand of extended warranty, but that shouldn't downplay the important role they can have in saving you a ton of money down the road.

The average age of vehicles continues to increase, with passenger cars increasing from 8.9 years (1998) to 11 years (2010). Light trucks increased from 7.4 years to 10.1 years in the same time period. These time frames are more than enough to drive the vehicle out of any manufacturer's warranty that it may have had when you bought it. With the average cost of an engine replacement being $2500 and up, the average cost of a transmission overhaul being $2000 and up, and the average price of check engine light repairs being $600 and up (for more on check engine lights visit mycheckenginelight.net), having someone else foot the bill suddenly becomes much more attractive. For a point of reference, the average cost of an extended warranty is $1200. These are basically the selling points that a salesman will give you. But, is it really worth it?

The short answer is yes and no. Yes because having an extended warranty could very well save you thousands of dollars. No because you could very well pay over $1000 for this warranty and never use it. The real deciding factor for you should be twofold, how long do you intend to keep the vehicle, and how many miles are on it when you make the purchase. If you buy a vehicle with 15,000 miles on it, and you only intend to keep it for two years, it's highly unlikely that an extended warranty would do you any good at all. On the other hand, if you buy a vehicle with 95,000 miles on it and intend to keep it for two years, it becomes extremely likely that an extended warranty will turn out to be a very beneficial purchase.

Let's first look at the manufacturer's warranty. The basic warranty for a brand new car is three years or 36,000 miles. This covers every component on the vehicle except wear items, such as brakes, windshield wipers, and tires. Those items are even covered for a shorter one year or 12,000 miles. After the basic warranty expires, there is the manufacturer's extended warranty. This warranty is different for all manufacturers, and types of vehicles within that brand. It's pretty common to have a five-year or 100,000 mile powertrain warranty with the vehicle. The powertrain warranty will cover all components of a powertrain system that are submerged in fluid. So, the water pump is covered because it's submerged in fluid, but an E.G.R. valve is not likely to be covered. An important warranty that everyone should know about is the extended federal emissions warranty. This covers a just a few emissions components for eight years or 80,000 miles, mainly the PCM (Powertrain Control Module) and the catalytic converter, but very few people know this warranty exists and that it covers two very expensive repairs. This warranty is only good at an authorized dealership. So be sure to ask before paying for either of these repairs.

Now comes the extended warranty. There are almost as many types of extended warranty for your car, as there are types of cars. They cover all levels of repairs, depending on how much you want to spend. The price of the extended warranty will depend on how much coverage you want, what type of vehicle it is, and how old the vehicle is. The more miles on the vehicle, the more likely it is to need a major repair, so the more expensive it will be to purchase coverage. You can buy a warranty that just covers the basics, or you can buy one that will cover every system of the vehicle. Again this depends on the type of vehicle and how many miles it has. You won't be able to purchase a bumper-to-bumper warranty on a vehicle with 95,000 miles on it. The warranty that you purchase will have a list of covered components that comes with it. It's really important to look this over and know what, if any, manufacturer warranty remains on the vehicle, to help you get the best level of coverage for your particular vehicle.

There is also a deductible that you will have to pay for each covered repair, similar to your car insurance. The most common deductible amount is $100, and for some companies you can pay an additional fee to have a $0 deductible. This is a pretty expensive option though, and isn't really necessary. The $100 deductible is a small price to pay for a $2000 transmission repair, and you only pay one deductible per repair visit. The more expensive extended warranties will also pay for a rental car for you as well, which is a huge help and is a big expense on it's own, if your vehicle breaks down on you. Again, this will be written in the language of the contract you sign when you make the purchase. If the vehicle you're purchasing is still covered under the basic three-year or 36,000 mile warranty, you'll get a much better price on the extended warranty, which in turn will allow you to get better coverage for your vehicle. For example - you'll be able to buy a warranty that has car rental coverage, all powertrain components, and ABS components, for the price you'd pay for just powertrain coverage if the vehicle had 60,000 miles on it.

One last thing to consider when buying an extended warranty, is where you will be having the vehicle serviced at. A dealership will work with almost any extended warranty on the market (exceptions would be specific to a certain dealer, and they'll readily tell you if there is one they don't accept) whereas an independent shop may take only one or two different warranties, and possibly even none at all. Most dealerships in urban markets also have car rental facilities on site, or very nearby. That can be a huge advantage over having to wait for a car to be delivered to the repair shop you're at. The bottom line is that you can buy peace of mind with an extended warranty. You'll know that if a major problem occurs, you're not going to be paying the full price for the repair, and that peace is worth the price of the extended warranty.

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