Do I need to get an extended warranty on a
used car? There are two schools of thought on this. If you’re asking around
family and friends about used car warranties you’re likely to get one of two
different answers argued just as passionately as politics. One will tell you that warranties are a scam.
Another will tell you that anyone who doesn’t protect the large investment they
just made would have to be crazy. Who’s right? When looking at the overall
picture, it may be that they’re both
Extended warranties are basically a type of
insurance. The word insurance can confuse some people since most generally
associate insurance with liability and collision. Your regular insurance that
you’re required to purchase in order to drive legally covers damages that
happen in the course of an accident or theft only. What about everything else?
That’s on you, unless you’ve purchased an extended warranty. Warranty companies
are businesses just like insurance companies. They are in the business to
profit and if warranty contracts weren’t profitable for the company, the
company would soon stop selling contracts. Warranty companies profit the same
way other insurance companies profit. They are basically betting that you will
pay for your contract but not use it. If you can figure out the way they
“hedge” their bets, you can ensure that you are purchasing a contract for a
vehicle that actually needs it.
If you go into a dealership today, they
will be able to price a warranty for you by only knowing the vehicle you want
to purchase. Unlike insurance, who is driving the vehicle is irrelevant. That’s
because they base their risk on the vehicle and its reliability. Purchasing an
extended warranty for your newly purchased used vehicle is a smart choice in
some situations and unnecessary in others. How do you know which situation you
are in? Answer the following questions to find out if a warranty is a good
Did you spend the majority of your disposable income
purchasing the used car?
If you spent most of your money just purchasing the
vehicle, a warranty might be a good idea until you get your cash back up. When
you just purchased the vehicle and are low on funds, a breakdown could be catastrophic
financially. People left without disposable cash after purchase would have a
more difficult time digging themselves out of a breakdown.
Did you pay a significant amount for your vehicle?
If you purchased a more expensive vehicle, then spending a
little more to protect a large investment is probably a good idea. Losing your
investment on a $3,000 used car with a blown engine isn’t nearly as financially
damaging as losing your investment on used car that you just spent $18,000 to
Are you in a jam if your vehicle breaks down?
If you do experience a breakdown and need to get a car
repaired yourself, do you have a way back and forth to work or for other
important personal travel? If not, a warranty may be a good idea.
Does your used car have a lower reliability rating than
Warranty companies sell service contract to make profits. That’s
what they’re supposed to do. By knowing how they calculate their own risk, you
can get a better idea of whether or not you need the warranty. Warranty companies separate vehicle makes and
models into classes. Those classes are based on the reliability of the model.
Less reliable brands like Mercedes-Benz, BMW, Dodge and Chrysler will be in one
class and that service plan will be more expensive. Brands known for
reliability like Honda, Subaru or Toyota will be in the lowest or highest class
respectively and be less expensive. A great way to figure out if you need a
warranty is to look at what class your vehicle is to the warranty company you
are about to purchase from. If the warranty is more expensive, and it’s in the
warranty companies highest or lowest class, there’s probably a better chance of
breakdown. Edmunds offers a great reliability rating tool on their site here.
Is the vehicle you are purchasing an older car with higher
Warranty companies also consider mileage and age. A newer
vehicle with lower miles will be less to protect. This is obviously because
lower mileage and newer vehicles are less likely to break down. If the vehicle
you are purchasing has more miles than most or is older than most, it’s
probably a good idea to get a warranty.
Is your used car a luxury brand?
Luxury brands have more complicated problems and part and
service cost exponentially more than other makes. It can be difficult for owners of some luxury brands to even find a shop that repairs them. They’re also more
expensive warranties to purchase. If you don’t have a few thousand dollars
laying around and are purchasing a luxury vehicle, it’s probably a good idea to
get a warranty.
Is peace of mind more important to you than saving money
This is a question only you can answer. By forgoing an
extended warranty, you are basically betting (just like the warranty companies)
that your vehicle won’t break down or that it would be less expensive to simply
fix it yourself. If you value piece of mind most, it’s probably a good idea to
get a warranty.
How did you do? If you answered two or more
of these questions “yes”, it’s probably a good idea for you to purchase a
warranty. Warranty companies are not out to scam people. They are out to make
money. It’s similar to a health insurance company, or any insurance company for
that matter. Insurance companies offset the cost of paying claims on sicker
people by charging a higher premium and selling plans to healthier people. With
vehicle extended service plans, they offset the cost of paying claims by
charging higher premiums for vehicles more likely to break down and offering
plans for those vehicles less likely to break down.
Calculating your risk can help you
determine if you need a warranty and how much you should pay for it. While
there are people that pay for their warranty and never use it, there are also
those who have been saved from financial catastrophe because they purchase a
warranty at the time of sale. A bumper to bumper warranty may cost more but it
will bring peace of mind that the money you just spent on a vehicle won’t go
down the drain when a break down happens.
Content By: The Used Car Store
1803 Brighton Place
Pittsburgh, PA 15212