I’d never buy an extended warranty for a new car. But if someone else asked whether they should buy one, I’d have a different answer: It depends.
Over the years I’ve talked to hundreds of car buyers and found that the decision to buy an extended car warranty is highly personal and rather emotional. Many are chasing peace of mind, and a warranty can provide that.
But it’s peace of mind for the dealer, too — another chance to make a fat profit.
Either way, it’s a good idea to make your decision before you enter the sales office at the dealership and get the hard sell. Here’s how to get there.
Is an extended warranty for you?
1. How long will you keep the car?
Nearly all new cars come with at least a three-year, 36,000-mile bumper-to-bumper warranty. For many brands, the warranty is even longer.
If you keep or lease your car for less than the length of your factory coverage, you do not — repeat, do not — need an extended warranty.
If you plan on keeping your car until the wheels fall off, you might consider buying an extended warranty to cover repairs in the car’s fifth and sixth year or longer.
2. Will you actually use the extended warranty?
Remember, the warranty covers only things that break on your car.
Warranties don’t cover oil changes, brake jobs, tires or other “wear items,” meaning things that are subject to wear. A veteran car dealer recently told me that only 1 in 10 people who buy extended warranties winds up using it. A Consumer Reports survey concluded: “Car owners typically paid more for the coverage than they got back in direct benefits.”
Look at this another way: They wouldn’t sell you the warranty if they really thought you were going to use it. As a wise friend of mine who knew her way around the car industry used to say, “I’m willing to roll the dice.”
3. Do you know you already have an extended warranty?
Most cars come with a powertrain warranty that kicks in after the bumper-to-bumper warranty expires. For example, Chevy has a powertrain warranty that lasts for five years or 60,000 miles. If anything goes wrong with the car’s powertrain — those parts that move the car down the road — it’s covered. Gratis.
But if the door handle breaks or the window won’t go up, you have to pay to fix it.
4. Can you buy the extended warranty later?
Imagine telling a financial planner that you were going to give someone $2,000 today for a product you can’t use for at least three years. They would say you’re nuts. But many people buy an extended warranty when they buy a new car and that warranty doesn’t even go into effect for three years!
Buying the warranty when you buy the car is easier, sure; you can roll the cost into your monthly payment. And most warranties are transferable if you decide to sell.
But why pay interest on something you won’t use for years?
Consider waiving the extended warranty at the time of purchase. Then, as your car approaches its third birthday, look into the extended warranty. You’ll know two things by then that you didn’t when you bought the car new: how much you like it and how troublesome it’s been.
Plus, you can shop around for the best price from the comfort of your home.
5. Will the cost of repairs exceed what you pay for the warranty?
Dealers pitch warranties using the worst-case scenario: The electronic system goes on the fritz and the bill will be three grand. Or, the transmission falls out. Yes, it’s possible. But it’s more likely you will have a leaking water pump or a failing oxygen sensor.
Let’s say you are tempted to buy an extended warranty for $1,200 (although many people pay much more), but you decline. Later, you wind up having a $600 repair. Ouch — but you’re still $600 ahead of the game.
OK, so how do I say no?
I’d never tell anyone to lie. But sometimes you can carefully phrase statements to deflect aggressive pitches from salespeople trained to overcome your objections.
So, if you’re facing a salesperson who isn’t taking no for an answer, try this: “I usually trade-in my cars every three years.” The word usually keeps you from lying. And there is no way for a salesperson to overcome that objection.
And, by the way, if you’re reading this after you already bought an extended car warranty, here’s a fun fact to cheer you up — you can cancel an extended warranty at any time and get a prorated refund.
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Philip Reed is a writer at NerdWallet. Twitter: @AutoReed.