5 Factors to Consider Before Buying an Extended Auto Warranty

Buying an extended warranty can represent a significant investment that actually increases the cost of your vehicle far beyond what you initially budgeted. However, the unknown repair and maintenance expenses that can come with owning a car can pile up unexpectedly as well. So before deciding whether or not to purchase a warranty, make sure you’ve done your homework and considered these five factors.

1. Assess Your Situation

Buying a new vs. a used car can be a completely different experience, each filled with unique factors to consider. Issues such as your purchasing and driving habits as well as the car model can help guide your decision. What kind of reputation does your car model have? Is it known for durability, or are there frequent trips to the mechanic in your future?

You can look to online resources such as reviews or fan sites for these sorts of details, and it’s a good idea to have this info handy when purchasing the vehicle as it could help make sure you’re getting a fair price on any warranty. Also, if it’s a used car then you should also check its existing repair history as any major issues previously can serve as a red flag that additional issues are likely to pop up down the road.

Additionally, you should take a minute to reflect on how well you drive. Have you been in your fair share of fender benders or do you occasionally bump into a tree or curb? Did you spend a lot of money repairing your previous car? Are the local roads in good condition or do you plan to drive off-road?

If your driving habits or road conditions could put extra wear and tear on the car, opting for the extended warranty may be in your best interests. Likewise, if you have a habit of hanging on to cars for the long haul then it could make sense to investigate additional protection. However, if you routinely trade in your car for a newer model ever year or two then long term coverage is probably not worth it for you.

2. Understand the Circumstances

When purchasing a new or used vehicle, the dealer may indicate that purchasing the extended warranty is a condition of securing a car loan. If so, make sure you verify this with the lender directly to ensure it’s not a ploy to make the dealership some extra money on the transaction. You don’t want to purchase coverage out of obligation only to find out later there was no such requirement as it can be very difficult to regain any money already paid.

Additionally, research to find out what kind of manufacturer’s warranty is in place, if any. The manufacturer will typically include a warranty that follows the car for three years from the initial sale or until the car has been driven about 36,000 miles – though this can differ by company so always check the policy itself to confirm the length. This will help you avoid purchasing a duplicate warranty.

However, if you will likely drive the car after the initial warranty expires, then some extended coverage may make sense for you. That said, make sure that the extended warranty is set up to begin after the initial coverage ends to ensure you get maximum value for your purchase.

3. Analyze Costs

Extended warranties – also known as service contracts – can cost a lot of money. And while that doesn’t necessarily mean the coverage is a scam, it is still important to consider the costs against the benefits of purchasing this sort of coverage.

Knowing the reputation and durability of the car is important, but also be sure to pay attention to the actual potential repair costs. Foreign cars are often more expensive to maintain and repair than domestic models, and parts can also vary greatly in price depending on how popular the model is and the availability of replacements.

If the price of potential repairs and upkeep all add up to an amount greater than the cost of the warranty, then go for it. However, remember that you are gambling that these and other covered costs will add up to more than the overall cost of the service contract before coverage expires. If you don’t consider the time element in your calculations you could find yourself paying a lot of money for protection that you don’t actually need.

4. Compare Options

Always keep in mind that it’s not required that you buy the warranty at the dealership where you purchased the vehicle. Remember that the dealer can make extra money for facilitating these transactions, so they may not have your best interests in mind.

So make sure you shop around before you decide to lease or buy a car and compare your options before deciding if buying a service contract is right for you. Also, keep in mind that the providers of these contracts can vary from the dealer themselves, to an insurance provider, credit union or standalone company. It’s important to know who’s actually underwriting the contract so you can verify that they will be around and responsive if you need to use the warranty.

5. Read the Fine Print

It’s important to be absolutely certain of what your service contract does and does not cover. Though reading the entire warranty document and reviewing each of the terms carefully is tedious, it can save you from the frustration of finding out after something goes wrong that coverage isn’t as extensive as initially thought. Most of the time, minor dents and scrapes as well as any normal wear on the vehicle will not be covered.

Also be sure to note that often times clauses in the contract can alter the warranty, such as reducing coverage if a damaged minor part leads to an issue with a major part before you notice the problem. Additionally, warranties may only cover the cost of replacing the part itself, but not the labor for making the repair.

In short, the contract will likely not cover every repair that your car could possibly need, so make sure you know what items are actually spelled out in your coverage. And remember that if a car detail isn’t laid out in the warranty, then it’s probably not covered.