A Review of Extended Car Warranties
Are Extended Car Warranties Worth It?
I'm wondering if your readers have any experience with extended warranties. We have a '96 Dodge Grand Caravan with about 55K on it, and the warranties have expired. We have been offered an extended warranty by a company called The Warranty Group. They show a rate of $158 for full coverage (for a year), with small deductibles for each repair. I'm wondering if this makes sense. It seems to me that it would pay for itself with just one small repair. I would appreciate hearing any comments from your readers if they have experience with this type of warranty, and especially if they are familiar with this particular company. Thanks!
Go to Library First
My suggestion would be to make a trip to the library and look up your car in the Consumer Reports car information available there. I was able to look up my car and see what the most common repairs were for it. You will also find other books, including Chiltons repair books, that tell you how to fix your car. Your car manual will tell you what repairs need to be done at certain mileage points, like changing the timing belt etc.
You need to also factor in how much these average repairs would cost you. Can you do it yourself? Have a friend, in-law or know someone who does car repair on the side and would therefore charge you less? How much would the repairs cost at a shop? (You can call them to see what the average cost for any given repair would run) With the warrantee you are considering, can you go to any repair shop or only theirs? What sort of guarantee do they give for work done? How much is the deductible for each repair? Is there a "lemon-law" type of rule where you can only have so many repairs a year?
Insurance companies exist to make money and they are VERY successful at it. I would do my homework thoroughly before giving them my money as the company will have to turn a profit somehow.
Advice from the Family Mechanic
My husband is a professional auto mechanic, yet we have extended warranties on both of our vehicles, a car and a truck. Many people wonder why we would need these, since he can provide the labor himself and also gets parts a bit cheaper through his employer, a new car dealership. Well -- both warranties have paid for themselves within the first year the car or truck was out of the factory warranty. Parts can be very expensive, and sometimes the only diagnostic tool available on the newer cars is part replacement -- replacing one part at a time until the problem is solved. The thing that happened to my car was with the ABS (anti-lock brake system) sensors. My car has 12 sensors, and one was bad (the ABS light stayed on all the time), but identifying the bad sensor was difficult. The car was out of the factory warranty but the extended warranty was in place. My husband had to replace 6 sensors, one at a time ($120 a sensor) until the bad one was found. The warranty covered this, including the 2 days of labor and a rental car to drive. The warranty also covered replacement of the rear stereo controls when they stopped working, power window switches, the heater fan control, etc. all within the first year. The warranty cost $1000, with a $50 deductible per visit to the dealership, but it has more than paid for itself. As my husband pointed out, the electronic dash system on his 1997 truck costs $800 to replace, and it is all one unit.
My husband has also learned a lot about non-manufacturer extended warranties -- those sold by companies who do NOT manufacture cars. Many of his customers have had repair coverage refused based on a minor technicality (decorative trim might not be covered, for example -- if the dash splits down the middle, no coverage) , or have had specified that used parts be used (used engines, for example), instead of factory replacement parts. If you get a warranty from an automobile manufacturer, you get factory-specified parts, good coverage, and the warranty will apply anywhere in the country, at any new car dealership. New car dealerships have freedom to sell warranties for any price they want -- there is no list price -- so shop around for the best price. As a rule of thumb, plan on spending at least $1000 to extend a warranty 3 years/36,000 miles. $300 a year for covered auto repairs (not including maintenance) isn't a bad deal at all.
Generally, you can buy an extended warranty anytime before the factory warranty runs out, although it is sometimes a bit cheaper to buy it within the first year after buying a new car. There's often little or no advantage to buying it until you have to -- check with the warranty seller to see if it makes a difference in price or coverage. I bought my extended warranty 500 miles before the 3-year/36,000 mile warranty ran out, after having the car thoroughly checked out. You can also buy extended warranties on a car you bought used, and if the factory warranty is still in place, the cost will be similar to that for the original owner.
An advantage if you do buy an extended warranty while the factory warranty is still in place -- the extended warranty will usually provide for a loaner car while your car is being repaired -- something many people don't realize.
The primary profits at a new car dealership aren't due to car sales -- they are due to the Service Department. And a dealership doesn't care who pays for repairs, and they just LOVE to sell warranties, since you're likely to return to their business for the repair work, which will be paid by the automaker. It is in a dealership's best interest to make you a good deal on a warranty -- so negotiate and shop around!
I figure that if someone is calling or mailing me unsolicited information about a warranty, then it probably isn't the best deal around. The best deals don't have to advertise, as they get enough business without going to that expense.
Better Shop Around
I purchase an extended warranty in 96 when I purchased a Chevy Cavalier. For the $800 warranty I have had $4,000 worth of work. I pay a $50 deductible for each repair, and the warranty company pays directly to my repair shop. There are MANY extended warranty companies out there. You will pay up to 3 times as much for the warranty from the dealer. Shop around, there are better deals out there, but be sure the company is reputable and will pay and be available when you need them. Warranty gold is located at Warrantygold.com and when I shopped had the BEST coverage for the BEST price, and I have had NO problems reaching them, or getting my repair shop paid for labor, parts, towing and rental cars. From my experience they are worth every cent!!!
Calculator: Auto Loan Calculator
Find Out About Complaints
Beware! I received similar offer, and contacted Better Business Bureau to see if there were any complaints against the warranty company. My mailing (so long ago, I can't remember the company name, but it sounds similar.) seemed too good to be true. After finding out that the business had multiple complaints against them, I promptly threw out the mailer!
Before You Buy an Extended Car Warranty, Read the Contract
We recently bought the Warranty Corp. warranty on a new used vehicle we purchased. When we received the actual info in the mail from them it shows that the warranty coverage is only 80% of the cost so in addition to the $50 deductible, you are also responsible for the additional 20%. I haven't decided yet whether this was a wise move or not. I normally don't buy extended warranties, but buying a used vehicle made this seem like a good idea. None of their paperwork said there was an 80/20 split. We haven't had to have any repairs yet--thankfully, so I don't know about their actual service once a claim is made.
Take the Next Step
- Before you buy or sell a vehicle, get all the facts. Edmunds.com will give you what you need to know to make a confident deal.
- Are you getting the best auto insurance rate? See how much you could save with one click. Fast, free quotes, online comparisons, and instant access to ID cards!
- Could spending 5 minutes reading a newsletter twice a week save you time and money every day? Dollar Stretcher Tips readers think so. Subscribe and find out how many ideas stretch your day and your dollar! Subscribers get a copy of our ebook Little Luxuries: 130 Ways to Live Better...For Less for FREE.
More Tips & Tools to Help You
Live Better...For Less
- 6 cheap, effective home security solutions
- 5 frugal ways to expand your living space
- Top 10 DIY mistakes made by home 'handymen'
- 15 mistakes to avoid when selling your home
- 9 ways to buy furniture for less
- Need a bigger home? How to maximize the space you already have
- Find the best mortgage rates in your area
- 3 ways to use a mortgage calculator
- Mortgage calculator: Calculate your payment and more
- Home equity calculator: HELOC vs. line of credit
- Should I borrow from my home equity?
- How much can additional payments save me on my mortgage?
- Who offers the most home insurance discounts?