Extended Warranties for New Cars

You could probably write this script yourself. Maybe you're lived it.

Suppose you have scraped together enough cash to pop for a brand-new car. You step inside the automotive dealership and begin browsing. Immediately, the sales staff begins closing in, like hyenas surrounding their prey. They circle, seemingly unnoticed, until one pounces upon you, invading your personal space.

"May I help you?" he sweetly asks.

"Yeah, right," you mutter to yourself. "How about I just lay my retirement savings on the altar?'

Out loud, you clear your throat and reply, "I'm looking for a no-frills, basic commuter car."

"I have just the thing," the salesman chirps. "Wanna take a test drive?"

Within twenty minutes, you and he are seated in a glass cubicle, hashing out options and pricing. The salesman excuses himself several times, presumably to run deep discount prices by his manager.

Finally, when you have all but waived your own rights to your eternal inheritance, the salesman swoops in for the kill. "Did you want an extended warranty?"

Unnecessary Add-Ons

Extended car warranties are a rip-off for many reasons. This is an additional way for car dealers to bump up the price of your vehicle, just when you think you have finished negotiating with the sales team, and you think you have made a solid deal.

Basic Logic

By now, you have heard the whole spiel. You may have bought into the advertising claims of safety, durability, and reliability of the vehicle. If the car is all it's cracked up to be, will you really need an extra insurance policy for breakdowns?

The manufacturer automatically offers a basic warranty package. This may cover any number of variables for anything from 3-10 years (or from 30,000 to 100,000 miles).

By that time, won't the dealer really want to sell you a new car anyway?

Extended Warranty Snags

First, by the time you finish paying for an added warranty, you have increased your monthly payments significantly. You would be better off to put more cash down, up front. That would lower your payments. Perhaps you could opt for a shorter term of payment.

If you pay off this car faster, you can buy a new car sooner anyway. Then you won't need an extended warranty after all.

Read the small print. Extended warranties are quite particular. They state specifically what the do not cover, and the exclusions can be extensive.

What if you decide to sell the vehicle later? Many extended warranties are non-transferable. That means they do not carry over to the person who purchases your car from you.

A Smarter Solution

If an automotive dealer quotes you a price for an extended warranty, here's another option.

Don't let an aggressive auto salesman intimidate you. You can decline his offer and simply discipline yourself to stash away that amount each month. That way, you can earn your own interest on the funds, and you will accumulate cash for any needed repairs for your vehicle. Why should the car dealer hold your funds, just in case something breaks down on your car? What if it doesn't? Why not keep the money in your own account instead?

Just be sure you actually follow through and save. Eventually, every vehicle does require some repairs.

You can pass on the extended warranty, pocket the difference, and come out ahead.