A good idea?
Consumer Reports says extended new-car warranties are a bad idea and not worth the investment. We asked Chief Car Chick and co-owner at Women's Automotive Solutions, LeeAnn Shattuck, when it might be a good idea to buy some peace of mind with an extended warranty.
Don't buy right away
“If you want to consider an extended warranty, wait,” says Shattuck. “Don’t buy it when you buy the new car — wait until just before the factory warranty expires.” Just be sure to buy it before your factory warranty expires, she says, as that will save you several hundred dollars. It is more expensive to buy an extended warranty after your factory warranty expires.
Consider reliability of the vehicle
Shattuck advises against buying extended warranties if you're buying a brand with a strong history of reliability (when properly maintained). “If you're buying a vehicle with questionable reliability (or a new model with no history), then an extended warranty may be worth it.”
Understand what is (and isn't) covered
Be sure you understand exactly what is covered by the warranty and what is not covered. When you see just how much is not covered, you may decide the cost of the warranty is not worth it to you.
Know who stands behind the warranty
If the warranty is through a third-party company, research the company that "backs" or "re-insures" the warranty company. A good warranty will be backed by a re-insurer who has been in business a long time and has a good reputation. Shattuck recommends Warranty Direct, Nation Warranty and Carchex as reputable companies. "You don’t want to go with a cheap warranty backed by a small, financially unstable company that could go bankrupt before your warranty expires," warns Shattuck.
Ask a lot of questions
Think you know enough now to make an informed decision? Not even close! Shattuck recommends digging deeper and asking these questions:
- How much is the deductible, and is it per visit or per repair? With a per-visit deductible, you pay a single amount, regardless of how many parts are repaired. On a "per-repair" deductible, you pay that amount for each part! ("Never buy a warranty with a per-repair deductible," says Shattuck.)
- Can the repairs be done at any shop, anywhere? Some warranties limit you to the dealership where the warranty was purchased, or to any dealership for that manufacturer. Really good warranties allow the repairs to be done at any dealership or ASE-certified repair facility, anywhere in the country. (Really helpful if you break down on a road trip, says Shattuck.)
- How do repair bills get paid? Do you have to pay for the repairs, and then the warranty company reimburses you? Or does the warranty company pay the repair shop directly (minus your deductible)? "I only recommend a warranty that pays the shop directly!" says Shattuck.
- Is the warranty transferable? If you sell your car sooner than expected, can you transfer the extended warranty to the buyer? "That’s a great selling point that can help you sell your car," says Shattuck.
- Is the warranty partially refundable if you sell your car? A good warranty will have a cancellation policy that allows you to recoup part of the cost of the warranty if you sell your car (and cancel the warranty) before it expires. "It’s a pro-rated amount," says Shattuck. "But any refund is better than nothing!"
Shop around and negotiate
"I prefer to either buy directly from a top-rated third-party company, or negotiate aggressively with the dealer," says Shattuck. "Dealers make a lot of money selling extended warranties at marked-up prices. That markup is sometimes over 100 percent. So call around to different dealers and negotiate and compare them to good third-party warranties. Shopping around can save you hundreds of dollars."
Remember — an extended warranty is essentially an insurance policy against something breaking on the vehicle that isn't supposed to break. It is not a maintenance program! You still have to properly maintain the car — regular oil / fluid changes, replace brakes, tires, wipers, etc. In fact, if you don't maintain the car properly (per the maintenance schedule in your manual), any warranty claims may be denied by the warranty company!
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