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Five Questions To Ask Before You Say Yes to an Extended Warranty

Edmunds.comEdmunds.com Member, Administrator, Moderator Posts: 10,315
edited November 2015 in General
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Five Questions To Ask Before You Say Yes to an Extended Warranty

Asking yourself these five questions will help you determine if you need an extended warranty on your new car. They'll also help you get the best price.

Read the full story here


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    marlon02marlon02 Member Posts: 1
    Fantastic article, Ronald. Certainly some nuggets of wisdom I wish I had known when I bought my first car, but some things can only be learned with time.

    I'm not sure how many affordable auto repair shops you have in your neck of the woods, but we've got some fairly reasonable auto body repair in Lake Forest (California). I mean, a totaled car is going to ruin the pocket book regardless of where you live... but if one opts to not accept an extended warranty, one should at least know what other options they have before making that decision.

    All the same, I am printing this post to give to my daughter. She's been driving for a year now, but her used car is already getting rather worn. When she can finally afford her own, I think this information will do her well.
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    glam1glam1 Member Posts: 8
    Wish I saw this earlier. Could have stopped my dad from buying the extended warranty!
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    mks1026mks1026 Member Posts: 1
    As an F&I manager myself, I find that though this was a good article, there are two fallacies with it.

    First, the article stated the following:

    "You're never going to have the same repair history in any two vehicles, of course. But if you are buying a vehicle from the same carmaker, that could be a good indication of what to expect."

    This seems to be a little confusing as it states that you're not going to have the same repair history in any two vehicles and this is precisely the reason why extended warranties are offered because though it may seem very costly initally, the warranty is like any insurance to help mitigate potential costs in the future. The key to this statement is something that everyone can agree on and that is, no one can tell the future but the only certain thing is that in the end, it will be the customer that is left on the side of the road with a potentially huge bill waiting for them when they get towed to a shop. And let's face it, whenever any of us takes a car into the repair shop, there is a lot of trepidation because we're all afraid to see that final repair bill. In addition, after seeing the total repair bill, most customers will have the idea that somehow they've been had because they've been told that they also need additional work that they might not have needed. This is a common feeling for everyone. One way to combat that feeling in my opinion is to have an extended warranty because no matter what needs to be fixed, the warranty company will be an advocate for you because they're only going to approve the repairs that are absolutely necessary. In the end, whatever is going on with the car, the customer wouldn't have to worry because they know that they're only paying a very low deductible.

    The other fallacy in the aforementioned statement by Edmunds, is that the historical quality of the vehicle will determine whether or not the car will need an extended warranty. The primary reason for any offering of an extended warranty is that no one can predict what will happen in the future. This is a very dangerous statement especially in light of what has been going on with perennial stalwarts when it came to automobile qaulity with brands such as Honda and Toyota. In the end, if Honda and Toyota weren't able to remedy safety related issues, then how many other areas do they also have problems that we haven't found out about? Lastly, every single manufactuer has had recalls. Doesn't that tell you that machines aren't perfect?

    "A pushy F&I manager can make you feel that saying no to the extended warranty is like playing Russian roulette with your car. You never know when that costly repair "bullet" might strike. But data seems to indicate that most people don't really need extended warranties."

    With this statement, let's look at it from a logical perspective. If the data shows that most people don't really need extended warranties, then a few thoughts... First, look up in "auto repair" on Google in your area code and see how many places pop up. If repairs weren't needed, why would these places be in business?
    Second, the article doesn't address the fact that in reality, dealers don't make much on cars. What they do make money on is servicing and not just on oil changes. In fact, with dealerships, there is a concept called "service absorption" which is a calculation in which a dealership strives to get their service, parts, and body shop departments, to pay the majority of the costs of running a dealership. Notice that "sales" is not mentiond here. Sure, profits from cars sales help, but if a dealer had to rely on sales profits to keep opened, then he would be out of business in no time. In the end, much of the profit generated from the service department is from legitimate repairs. what those repairs consist of is unpredicatable because after all, who knows what can go wrong?

    The gist of my argument is this, with both of these areas, from a logical standpoint, nothing ever manufacturered is 100% fail safe. Because of defects, planned obselescense, or just mechnical issues that may come with a machine, even if a vehicle is 99% fail safe, that 1% is very difficult to determine what exactly is going to have issues. Could it be the air conditioning? Could it be the engine? Or maybe just something as small as the engine on the power windows? In any case, it's the customer that is stuck with the bill and not Edmunds or the dealership but, the reality is that the customer would have to pay someone to fix it.
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    ken117ken117 Member Posts: 249
    At best an extended warranty, actually a service contract, is very expensive insurance against a limited number of possible future repair events. The cost of such a service contract is established by actuaries who understand the true risk of such an event and who price the service contract so as to provide a profit for the provider of the contract as well as the dealer.

    Such extended service contracts are designed to exclude most of the compenents expected to go bad.

    A service contract is rarely a good way for a person to spend their money.

    Before buying such a contract, people should take the time to understand just what they are buying. For example, a five year service contract for 60K miles is actually, in most cases, a two year contract for no more than 24K miles. So, if the cost is $2,000 the purchaser is actually betting the actual covered repairs during those two years will exceed $2,000. With today's improved vehicles is that is really likely?

    Smart buyers will take the $2,000 for the, or the increase in monthly payments necessary to cover the, service contract and put the money aside for any covered repair which might occur during the period to be covered by the service contract which extends beyond the manufacturer's warranty.

    By doing this the buyer has money available in the unlikely event a problem covered by the service contract happens. Of course, if no such event happens, the buyer then has the money which would have gone to the dealer and service contract provider.

    People should never accept any sales pitch from a dealer F&I person, such as that posted by mk1026. An F&I person has one goal which is to increase the dealer profit by selling a littany of overpriced products, including highly profitable service contracts, to the buyer.

    The F&I sales pitch has been developed by the most adept of sales people, is intended to play on the fears of the buyer, and has been designed to assure the buyer does not have sufficient time to really consider the true value of the F&I products.

    F&I people know once a buyer leaves the dealership they will not return to purchase an F&I product.

    In fact most F&I people strive to achieve $1,000 more of additional dealer profit through such sales.

    How many of us really would willingly choose to increase the dealer's profit by purchasing overpriced products if we were allowed time to consider those purchases?
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    davebehrensdavebehrens Member Posts: 9
    I recently purchased a 2013 Toyota RAV4 LTD. It is heavily computerized. With an aftermarket cable, free software, and a 32 bit laptop, anyone can access this on-board computer to troubleshoot the vehicle.

    However, OEM electronic components, available only from Toyota, can be really expensive if they fail. For this reason I am considering purchasing, for the first time in my life, an extended warranty.
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    jbcokjbcok Member Posts: 1
    We just purchased a new Toyota Sienna this month. Although we have NEVER purchased a warranty in the past we did with this car. In 2008 we purchased new a Toyota Tundra, based on the reliability and reviews we didn't anticipate any problems. Before the car hit 90k miles we had replaced the power steering pump, water pump, front differential, front axel and rear wheel barring. The car was under 5 years old. We didn't tow much with it, do all maintenance, and drive it easy so we were dumbfounded by the problems we encountered. Of course everyone we spoke with said that our situation was unusual and we were just unlucky...with our recent purchase we ended up negotiating the rate down $150 from the "dealerships cost" because they said they sell them for $1 over cost (yeah right) and we also negotiated our interest rate down .5% along with it to make the warranty deal. We did our research on interest rates so I knew we were already getting a better rate than what I had found elsewhere. Overall between the two we ended up getting a 6 year 100,000 mi bumper to bumper warranty for about $1300 with a reputable company. Do I still wonder if it was worth it? Yes. But the peace of mind after our previous experience is worth it and I know it will cover the common issues the new car may have like the motor for the power sliding doors that tend to go out and cost well over $1000 to repair.
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    garrisosgarrisos Member Posts: 1
    edited January 2015
    This is a great Article and thread. I own a 2012 Audi A6 w/ 47k with all the available options and I'm considering an extended warranty. The dealer quoted me $7800 and then after talking a bit she would not budge below $6035 which would get me to 107k miles, $250 detectable bumper to bumper... I about pooped myself.

    I'm struggling! Piece of mind, what could or could not happen, set aside $3500 just for "what if's"... what is the best decision?

    Looking at my past warranty repairs covered are $2800-LED headlight assembly and a vacuum thing under the supercharger-$1200.
    Thanks for your advice!
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    micho_rizomicho_rizo Member Posts: 1
    edited August 2015
    You can thank Edmunds for giving you this credible advice "new cars are more reliable than ever, and the data seems to indicate that most people might not need an extended warranty". Notice how Edmunds cites JDM power for the study, you will find that it was on how the long-term dependability of three-year-old vehicles has improved year-over-year. I would hope ALL brand new vehicles will have a high dependability after owning it for ONLY 3 YEARS.

    Most Dealerships offer warranties up to 84 months and well over 100k miles. So Edmunds, can you please cite an article or study that has proved that the reliability on vehicles over 100k miles or 7 years has improved because it looks like I just read an article on a Mooch trying to justify the reason for not buying an "extended service contract".
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    steverstever Guest Posts: 52,454
    edited August 2015
    Here's one from Consumer Reports:

    Extended car warranties: An expensive gamble


    "Conducted by the Consumer Reports National Research Center in late 2013, the survey included responses from more than 12,000 Consumer Reports subscribers who purchased an extended warranty. The survey covers vehicles built during model years 2006 to 2010. We targeted those years to focus on vehicles that are typically no longer covered by a traditional three-year new-car factory warranty.

    But the odds are you’ll never need the coverage, and even if you do, the money you’ll save in repairs won’t come close to what you paid for the added warranty."
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    jronlinejronline Member Posts: 1
    We purchased a new 2007 Dodge Dakota in the summer of 2007 and for aprox $2600 added a Maxcare Lifetime service contract through Dodge. We planned on keeping the vehicle forever and decided this would be a good deal since the 2 prior vehicles we had purchased new both had problems within 12 months of the warranty running out. the first was a transmission problem and the second being computer problems. We now have 110,000 miles on the Dakota and have had repairs 3 times totaling over $4000. We will be purchasing a second vehicle new soon and if none of the other dealerships offer this type of Lifetime service contracts we will be buying another Dodge or Chrysler. Hopefully they will be offering 0% interest and i will include the service contract in the financing and the $7000 or more in interest will pay for the warranty.
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    terrymedinaterrymedina Member Posts: 4
    Sometimes you can also transfer your extended warranty to the future buyers. It's good to have one, however its price have to be comprehensive in coverage. When buying a new car, probably the cots are already included. You should consider this before buying and find the cheapest warranty for you.
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    isellhondasisellhondas Member Posts: 20,342
    7800.00 for an extended warranty on an Audi?

    Speaks volumes about how they hold up huh?
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    adam5thadam5th Member Posts: 1
    An extended warranty is an insurance product. It's main value to the consumer it that it's an inflation hedge against the rapidly rising costs of future auto repairs, provided you plan to keep the car for the life of the warranty. Also, today's cars have a lot of electronic controls, which often fail or need adjusting. And they are expensive to repair replace $$$$. The EW is a gamble plain and simple, with the odds stacked in favor of the company selling it. But, in some instances they can pay off.
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    isellhondasisellhondas Member Posts: 20,342
    If you never have a problem you'll kick yourself for buying the extended warranty. If something really bad happens, you'll be very glad you did. It's an expensive insurance policy and nothing more.
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    tron126matron126ma Member Posts: 1
    Had a 2000 Toyota Corolla and at 164k miles it needed a new engine put in, Thank heavens for the extended warranty!!
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    blakehdblakehd Member Posts: 1
    STEER CLEAR FROM WARRANTY DIRECT OR THEIR PARENT INTERSTATE NATIONAL DEALER SERVICES. They are horrible and do not pay what is required to actually have your car repaired. I took my Volvo XC70 to a very reputable import auto repair shop. They quickly identified the problem and sent the estimate to Warranty Direct (INDS). At first they had the contract completed wrong, saying I had a v70 not a XC70 and that my contract didn't cover AWD. Interesting since the part was not a drivetrain part. Anyway, they finally straightened out the contract agreed that the parts were covered and then said that the repair shop would need to use a NAPA remanufactured mass air flow meter. Anyone that has worked on newer Volvos will tell you that the last part that you want remanufactured is the mass air flow meter. The repair shop also said they did NOT recommend using a remanufactured part, that a new Volvo or OEM equivalent must be used for a mass air flow meter. However, they said they would do the repair but could not warranty the part or pay for another replacement if it failed. Well guess what...after they installed it, it threw 6 new codes! Misfires on every cylinder and low air flow trouble code. It is not even driveable now. So both the repair shop and me contacted Warranty Direct/ INDS and the reply from INDS was that they aren't interested if the car is repaired, they are just going to pay what they have decided to pay for the remanufactured part EVEN THOUGH THE CONTRACT SAID, "REPLACEMENT PARTS MAY BE NEW!" I quoted the terms of the warranty contract that stated "We will pay You for the the reasonable costs to REPAIR OR REPLACE any of the parts included in Your Coverage which cause a failure" and I noted to them that the car HAS NOT BEEN REPAIRED. Again, the supervisor said we are only paying for the remanufactured part and if the car isn't repaired, its not their fault and that I should work it out with the repair shop. If there was any additional cost to getting the car REPAIRED, IT WOULD BE MY RESPONSIBILITY ???? They also REFUSED TO CALL AND DISCUSS THE PROBLEM WITH THE PART WITH THE REPAIR SHOP.
    This is the FIRST repair on this car since I purchased the warranty almost 2 years ago!! I can't believe the amount of money this company has made on me and won't even ensure that my car is running!!
    BTW, their other warranty brands are STAR RV, STAR AUTO, STAR SPORT, STAR MARINE, and HI-ROAD CLASSIC. LOOK FOR ANOTHER WARRANTY PROVIDER AND DON'T MAKE THE SAME MISTAKE THAT I MADE!
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    redguard57redguard57 Member Posts: 1
    edited August 2016
    I usually buy the extended warranty on new or slightly used cars.

    Car #1 - 1998 Dodge Intrepid. Had so much stuff replaced on this one that the service contract more than paid for itself. I can't even remember everything that was done on this car - but all 4 power window motors and the engine short block replacement were two big repairs that combined were more than the contract. Dodges are notoriously unreliable though. Amazing that I drove it 11 years.

    Car #2 - 2010 Hyundai Genesis Coupe - This one was break-even more or less. In the 7 years I owned it, it didn't need that much time in the shop besides maintenance. A few sensor failures, etc... Around 70k miles both the power window motors needed replacing... that pushed it to break-even territory, maybe 100-200 over. Not nearly as much ROI as the Dodge's warranty but still worth it.

    It's basically insurance against major failures. I bought the contract for my next car and my wife's car, although they are both too new to judge. I've had good results from them in the past though. Generally speaking I think it's money well spent.
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    texasestexases Member Posts: 10,769
    Only if it's factory-backed, or if you're lucky. Many 3rd party warranties turn out to be worthless.
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    tealgartealgar Member Posts: 1
    I wonder how much the conversation changes if the warranty investment is 100% refundable if not used? We've sold a ton of these warranties which allow infinite claims in the Manufacturer Warranty period and the refund is only void if there is a claim made in the extension period. It seems irrational not to buy this warranty at that point if you have a 5 year+ time horizon for owning your vehicle...Peace of Mind and Value are no longer mutually exclusive!
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    informedconinformedcon Member Posts: 1
    I'm curious as to which companies offer this "100% refundable" policy?
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    hgutmanhgutman Member Posts: 2
    People should distinguish manufacturer's warranties from 3d party warranties Many third party warranty start with these assumptions,

    1) the repair is not covered and company employees should identify why the proposed repair is not covered.

    2) employees should use these tools to deny coverage: the problem was pre-existing, the particular part is not covered (while the transmission is covered, the flang gasket is not so coverage is denied), the vehicle has been misused.
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    wilsondriver20wilsondriver20 Member Posts: 1
    I purchased a Ford ExtraCare Extended Service Plan on the recommendation of my service advisor at Koons Ford in Maryland. He said it was much more reliable at paying than 3rd party warranties, which he said customers often had trouble with. I had one or two repairs successfully covered under Ford's plan.

    Recently, the dealer advised me to replace the "fuel tank filler pipe gasket." According to Ford's description of the ExtraCare level of coverage, the plan "covers major engine components, plus all gaskets, seals, and internal engine parts." One of the engine covered components listed is "fuel tank and lines," another is "seals and gaskets." Plain English - it should be covered.

    However, Ford (not the dealer) refuses to authorize coverage. I have been through two "mediation" processes. Ford's participation in two mediation services has been perfunctory and appears to be in bad faith.

    For example, Ford told the Maryland Attorney General that the repair was not covered because the pat was "not a mechanical part." And Ford told the Better Business Bureau that the "only warranty that provides coverage for the gaskets would be the New Motor Vehicle Limited Warranty." Neither statement is supported by the Extended Service Plan's documents (look them up yourself). Ford is just making up excuses.

    My theory is that someone at Ford mis-coded this particular repair and no one who is involved in reviewing customer appeals has the authority to investigate the possibility of a mistake in the coding.

    It is shameful that Ford will not participate in customer complaint mediation in good faith.

    For anyone who is under the impression that consumer mediation services, like the Better Business Bureau, actively engage in disputes - you're wrong. I don't even think BBB staff read the materials. They have a boring process where they encourage the parties to go back and forth and they close the case when the company tells them the case is closed.

    BBB will write, "This matter is now closed in BBB files, and will appear in the company’s BBB Business Profile as: 'Answered - the business addressed the issues within the complaint, but the consumer remains dissatisfied.'" In fact, Ford did not address the issues within my complaint, they simply wrote some word salad and that was convincing enough for the BBB staff to check the box "addressed."
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