Perhaps you’ve experienced it yourself when shopping around for a car. You crisscross the county, subjecting yourself to hours of comparison shopping and price haggling. Ultimately you land on the right car at the right price. Then when you finally sit down with the finance manager to sign the dotted line, the hard sell truly begins—the extended service warranty. Writing for Bankrate.com, Lucy Lazarony explains that an extended warranty is actually an extended service contract, which covers the cost of certain repairs and problems after a car’s factory warranty expires. Extended warranties are huge moneymakers for auto dealers, with a markup of at least 100% or more. If you’re not careful, signing up for one could cost you hundreds, even thousands of dollars.
Whatever you do, don’t allow the dealer to pressure you into purchasing an extended service contract or warranty at an inflated price. First off, says Lazarony, you may not need an extended warranty. And even if you do, you’ll get a much better deal later by shopping around. People who buy and trade cars frequently should pass on an extended warranty. There’s no need to purchase one if you only plan to keep the car for three or four years since repairs are covered under the car’s original warranty. Plus, many auto manufacturers now offer warranties above and beyond the once standard three-year or 36,000 miles protection. Before you consider an extended warranty, take a close look at your car’s original warranty. It may be all you need.
To Buy or Not to Buy
If you plan on keeping a car long after its original warranty expires, answering the following questions may help you decide whether to purchase an extended service contract or not:
1. Do you hate surprise expenses, especially costly auto repairs?
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2. Will the cost of replacing an expensive electrical part or air conditioner or transmission bust your monthly budget? Or do you have a few thousand dollars tucked away in an emergency fund for just these kinds of expenses?
3. How long do you plan on keeping the car after the original warranty expires?
4. Would you sleep better at night knowing that certain major repairs will be covered under an extended service contract? Or would you rather risk it and pay for repairs when and if they are needed?
If you come to the conclusion that an extended service contract is the right idea, remember to shop the price down. And also keep in mind that you don’t need to buy it at the same time you buy your car. You can purchase an extended warranty a week, a month, even years after you buy a new car.