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Extended Warranties

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Comments

  • dwynnedwynne Posts: 4,018
    You'll probably still have that money (plus interest) in 3 years.

    Not unless they make BMWs better than when I had mine :D . One good thing is that you can get an independent shop work on the BMW rather than the dealer. Most BMW dealers are super high on parts and labor and you can get most stuff done a local shop that specializes in BMWs for less money. You might not get a Z3 or 330i loaner car like I used to get from the dealer, but repair costs will be less.

    Dennis
  • mikefm58mikefm58 Posts: 2,882
    You won't find any recommendation for an EW other than a manufacturer backed one from any of the regulars here. Too many of us have been burned by the 3rd party kind.
  • jontyreesjontyrees Posts: 159
    Hi - I just bought an 08 Taurus Ltd (fabulous car, btw - crazy price), and declined the EW given that I hadn't researched it. I probably missed the boat on rolling it in with the financing, but I'm still interested in getting some extended coverage. The dealer offered the basic coverage extended from 3/36000 to 5/75000 for $1200. 2 extra years or 39k miles for $1200 seemed steep to me - was I right?
  • wlbrown9wlbrown9 Posts: 835
    I researched this a couple of years ago (did not buy Ford) and found fordwarrantys.com at a discount for Ford ESP warranty. Just now did a web search and there seem to be a number of legit Ford Dealers selling these at a discount over the web. So, do the search and contact 6-8 of them for pricing and take the best price.

    One other thing to consider, many states can not collect sales tax on this if you purchase from a dealer in another state, but if you had purchased when you bought you Taurus you probably would have paid state sales tax. I'm in Tennessee and our rate is 9.25%, so a $1000 purchase in state would add $92.50 in additional cost for sales tax.
  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,320
    I don't buy frequently, but when I do, I look over the EW at the time.

    Since 1980, I've owned three Town Cars and the only major expense of repair was on the current 1994 to replace some parts in the differential. All other costs were related to maintenance. The repair cost to the differential was a lot less than buying EW & applying their respective deductibles.

    I believe when you buy a quality automobile, you don't need any EW, but if you buy a marginal quality vehicle, perhaps an EW is to be considered.

    Previous to 1980 and going back to 1967, we purchased two Ford wagons, but no EW on either. Our 66 Mustang GT, 134,000 miles never had an EW either. :)
  • dtownfbdtownfb Posts: 2,915
    There's a regular poster, joel6622, who is a finance manager for a Ford dealership in TN. He can probably help you with an extended warranty.
  • wisemoneywisemoney Posts: 42
    Rules of Car Buying.

    1. Never use your precious, hard-earned money to pay for an expensive and unreliable car.
    2. Only buy the best value, or the lowest cost and highest quality combination.
    3. Never buy Extended Warranties. A reliable car doesn't need one, and you should only buy a reliable car.
  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,320
    Excellent advice.

    On The Reliability Scale where would you place the 2005 Jaguar XJ8 L ?

    The style is appealing, but the nearest dealer/service is in the next state.
  • wisemoneywisemoney Posts: 42
    Well sure the maximum benefit for collision on a 100,000 Lexus would be more than the maximum benefit for an extended warranty. But you're paying a LOT more in premiums for 100,000 Lexus than you are for a simple extended warranty.

    Because you're paying a lot less for an extended care warranty, of course the maximum benefit is a lot less. That doesn't make it less of a value. Is Fit collision insurance less of a value than the Lexus insurance because the maximum benefit is less? Of course not.


    Let's look at two separate ratios to explain things more clearly. The ratio of a car's depreciated value over it's collision coverage premium is one ratio. The other ratio is the ratio of a car's largest repair expense over it's extended warranty cost. These are analogous measures of value for collision coverage and extended warranties. The largest claim over the premium cost is shown below.

    1. (Car Value)/(Collision premium)

    2. (Largest repair bill)/(Extended warranty cost)

    The point that I'm trying to make can be summed up in one equation as shown below:

    (Largest Claim = Car Value)/(Collision premium) is much greater than
    (Largest Claim = Largest repair bill)/(Extended warranty cost)


    for newer vehicles.

    For any particular vehicle, you need to analyze the above equation very carefully. This equation is the mathematical explanation and proof of my argument.

    Whether it's a Lexus or a Honda Fit, Ratio number 1 is always greater than Ratio number 2 for newer vehicles.

    A Lexus extended warranty will cost more than a Honda Fit extended warranty, but a Lexus will have potentially larger repair bills than a Honda Fit. Therefore ratio 2 will stay relatively constant.

    A Lexus collision premium will cost more than a Honda Fit collision premium, but a Lexus costs way more than a Honda Fit to replace. Therefore ratio 1 will stay relatively constant.

    BUT, WE ARE COMPARING TWO DIFFERENT RATIOS, AND I AM STATING THAT RATIO NUMBER 1 IS MUCH GREATER than RATIO NUMBER 2 FOR NEWER VEHICLES and THEREFORE THE VALUE OF COLLISION INSURANCE IS GREATER THAN THE VALUE OF AN EXTENDED WARRANTY.

    WHEN RATIO 1 BECOMES EQUAL TO RATIO 2 AS THE CAR DEPRECIATES, IT IS NO LONGER A GOOD VALUE AND JUST LIKE EXTENDED WARRANTIES, I NO LONGER NEED COVERAGE.
  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,320
    What government job do you have? :(
  • joel0622joel0622 Posts: 3,302
    WOW!!! Here I thought it was always just a matter of a persons particular budget on any given month could absorb a $500 to $5000 repair bill or would they rather pay $20 a month to ease the burden. :D
  • jimbresjimbres Posts: 2,025
    I share your confusion. I've read that post 4 times & couldn't explain it to you if you held a gun to my head.

    I pretty much agree with your summary, although I'd rephrase it a bit: if you're handling your finances like a grown-up - if you've got money in the bank & a handle on your debt, then you don't need an extended warranty. But if you're living from paycheck to paycheck - if you're one step ahead of the sheriff & generally clueless when it comes to money management - then an extended warranty might not be a bad idea for you.
  • tidestertidester Posts: 10,110
    But if you're living from paycheck to paycheck ...

    Just to be clear, many (most) people who live from pay check to pay check DO handle their finances like grown ups, know about money management and are not scofflaws on the run. You might have worded that a little better to avoid possible misinterpretation.

    tidester, host
    SUVs and Smart Shopper
  • jimbresjimbres Posts: 2,025
    Remember that I'm talking about the people who come to this particular forum. Most of them are in the process of buying new cars, which come with factory warranties. Those warranties give them 3 or 4 years to build up reserves against post-warranty repair costs. If they can manage to put a few dollars a day into one of the online savings accounts (ING Direct, for example), they'll have several thousand dollars when the factory warranty runs out. And if they can't do this, then perhaps they're in over their heads & they should be shopping for less expensive vehicles.

    Sorry for the harsh words, but I firmly believe that you should budget for car repairs just as you should budget for the other stuff that you need. That means setting something aside from each paycheck so that you can cover unexpected expenses.
  • Kirstie_HKirstie_H Posts: 10,824
    It is a personal choice, regardless of finances. It's also a gamble - the extended warranty may cost you more or less than you get out of it.

    My parents have a very healthy income, and they choose to buy the manufacturer-backed extended warranty every time. That pretty much "fixes" the cost of their repair bills for the duration of their vehicle ownership, and they don't even have to think about it. Something seem wrong? Take the car in. They're old, and they just prefer not to have to consider the cost of long-term problems with the car.

    For some people, this peace of mind and level of simplicity is just what they're looking for. Others prefer to pay as issues arise. The decision to purchase/not purchase an extended warranty isn't always as simple as bad vs good money management.

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  • euphoniumeuphonium Great Northwest, West of the Cascades.Posts: 3,320
    EW=Mechanical Insuance. The purpose of insurance is to prevent a financial catastrophe, it is not a maintenence contract. The amount you can afford to absorb in a claim should be your deductible.

    If the engine blows, needing replacement, it will cost a lot more for the luxury car than the sub compact to replace it. If you can afford the luxury car you can afford the replacement w/o an EW because the cost is not catastrophic to you who has the Bucks in the first place.

    Putting the amount of the EW premium into an Aggressive Growth fund will profit you more in the long run.

    So, what price is Peace of Mind? The premium you paid plus the gain you didn't get in the stock market.
  • tidestertidester Posts: 10,110
    So, what price is Peace of Mind? The premium you paid plus the gain you didn't get in the stock market.

    That's your metric. We all have our own.

    tidester, host
    SUVs and Smart Shopper
  • fiprofipro Posts: 1
    One of the big perks of a service contract is to keep your ownership costs of your vehicle predictable, if you think you will keep your car for 6 yrs and 85000 mi you can purchase a service contract and maint plan along with your new or used auto. Now if your total payment is something you can afford you can be confident that this is your total cost of ownership. Most people who say the words always and never show that they haven't thought things threw. Why would limiting your risks be a bad thing? If you deal with an ethical dealer they will advise you as to what options are available and let YOU make an informed decision as to what protections would be beneficial to you. If the finance department starts telling you that more than 1-3 plans are a good idea for you they are probably not looking out for your best interests and it is time to go to an ethical dealer. I have been a Finance and ins professional for many years and commonly tell my clients that no options make sense for them and others 2-3 things may be a good idea. Just find a dealer you can trust!!!
  • jimbresjimbres Posts: 2,025
    For a long time, my mother-in-law did pretty much the same thing as your parents. I really couldn't see why - after all, she sees cars as appliances (not such a bad thing, really) & always buys the cheapest car that meets her needs. This leaves her with loads of money in the bank - enough to buy the same car 2 or 3 times over. I didn't see any reason for her to buy an EW, but she was always a pushover for the first salesman to cite "peace of mind" (great marketing phrase!) as a reason to get one. She grew up during the Depression & that was all she needed to hear.

    Then, one day, I pointed out that when she buys an EW, someone else got to earn interest on her money. (She pays cash for her cars & cash for the service contracts.) Like many retirees, she's income-oriented & wants any dollar not needed for current living expenses to be earning interest. But she had never stopped to think of the interest income that she was giving up when she bought a service contract. As soon as she did, she soured on the whole idea & turned down the offer of an EW when she bought her next car: a 2000 Camry stripper which has required nothing beyond routine maintenance. She's thinking of replacing it when the 2010 Camry hits the showroom - she likes a new car every 10 years - but she won't buy a service contract. In fact, she recently talked a friend out of buying one.
  • jimbresjimbres Posts: 2,025
    That's your metric. We all have our own.

    No argument. But it's still worth noting that a fundamental, time-honored axiom of casualty insurance is that you should purchase protection only against catastrophic losses & self-insure against everything else. That's why I pay extra to get the best homeowners coverage available in my area. I saw a small electrical fire do over $100K damage to my neighbor's house in less than 20 minutes. A loss of that magnitude would cripple me, & I'll pay whatever is necessary to protect myself from that.

    But I can handle a $2K auto repair bill. After I've paid it, I'll be lousy company for the rest of that week, but I won't have to postpone retirement or skip my vacation. I've made it a point to build up an emergency fund to cover this stuff.

    Incidentally, the largest repair bill that we've actually paid during the last 20 years was less than $1500. Keep in mind that we keep our cars for a long time: 1 for over 13 years & another for almost 12. So we have lots of experience maintaining cars after the factory warranties have run out.
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