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.
“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.
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.”
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.
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.
Think you know enough now to make an informed decision? Not even close! Shattuck recommends digging deeper and asking these questions:
"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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