Exercise caution before buying an extended auto warranty

Extended warranties are nice, but they are not always a good deal.

Whether you buy a new or used vehicle, chances are the dealer will offer you the chance to buy an extended warranty.

These warranties are intended to either cover repairs not included under the factory warranty or pick up the cost for major repairs after the factory warranty runs out on a car.

Although the extra coverage might sound good to a car buyer like you, take some time to think about it before you buy.

A Golden Egg

As an auto shopper, you should realize that car dealers want to earn a huge profit by selling an extended warranty to you. A dealer earning money from a sale isn’t necessarily bad (why else would they be in business?), but can suggest that the dealer isn’t purely altruistic in offering you extra protection.

Normal sales pitches will warn buyers of the perils of being stranded out of town on vacation or being in a financial bind should the air conditioner or transmission need replacement after the manufacturer’s warranty expires.

Statistics Suggest Caution

Almost two-thirds of extended warranty owners who responded to a survey conducted by Consumer Reports Magazine said they spent more on the warranty than the actual cost of covered repairs. More than 40 percent of the respondents said they never used their extended warranty at all.

A very small minority said their extended warranty actually saved them money. The survey did not seem to establish how many extended warranty buyers regretted their purchase.

Financing an Extended Warranty

If you like the idea of having extended warranty coverage available, you can usually choose to include its cost with your auto loan when you buy a car. Doing this helps you keep your upfront cost low, but also can obscure the actual cost of the warranty.

Another problem is that the extra dollar amount on the loan could make your auto purchase upside down, meaning you owe more on your loan than the car is worth. Financing your warranty purchase can also increase the amount of interest you pay. Fortunately, other options are available.

Exploring Options

Car buyers who want to buy extended warranty coverage can benefit from knowing they have options available. Car owners can purchase extended warranties with cash to keep their financing cost low.

Car owners can choose from manufacturer-endorsed extended warranty options or from various aftermarket warranty providers. Buyers should thoroughly investigate any aftermarket provider before they buy coverage.

• Extended warranties can include bumper-to-bumper coverage or cover only major repairs. They can also add other benefits such as trip-interruption coverage, gap coverage.
• Consider buying extended warranty coverage from another dealer.
• Extended warranty prices vary by dealer, including those from out of state.

Make your own warranty

Rather than spending money on an extended warranty, vehicle owners should consider depositing the money in a savings or investment account. This way the money grows over time and will be available to help with repairs as needed. If unused, the money will still be there when the owner changes cars.

Extended warranties are often not worth the money from a cost-savings perspective, but the added assurance they offer justifies the cost for many buyers. Carefully weigh all your options and then decide which choice makes you feel most comfortable.

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