Are Extended Warranties a Good Idea?

December 19, 2019 by First Federal Bank

A toy car sits on top of twenty dollar billsRegular maintenance checks and repairs along with the costs associated with them are just part of car ownership. Even a brand new car isn’t exempt from time in the body shop. To help protect your budget from mechanic-related expenses, dealerships will offer an extended warranty when you purchase a car, but is the price for the extra coverage really worth it?

Extended warranty specs

Although an extended warranty can have several names — mechanical breakdown insurance, vehicle protection plan, service agreement and extended service contract — it’s basically a plan that lists out repairs and services it will cover once the warranties from your car’s manufacturer expire, according to U.S. News & World Report writer John M. Vincent. Since every plan is different, you must read the fine print. Most extended warranties won’t cover routine maintenance, but some will give you bonus services like roadside assistance and towing. Be sure you know the end date of your extended warranty coverage — extended does not equal forever. You’ll also want to understand how you’ll get paid for repairs under the warranty and whether the warranty can be transferred to another vehicle, adds Vincent.

Consumer Reports writer Jeff S. Bartlett notes that extended warranties aren’t limited to your dealership — insurance companies, auto clubs and AAA sell them — and the price of the plan is negotiable.

Sign on the dotted line

The plan you choose will determine what services and repairs are covered and for how long, but every extended warranty will offer you a degree of confidence, helping to mitigate your stress over automotive bills.

If the car you’re planning to purchase isn’t known for its longevity, Bartlett notes that an extended warranty might be a good investment.

If saving for a rainy day, aka an emergency fund dedicated to auto expenses, isn’t something you can do, or if an unexpected bill from the auto shop will destroy your chances of paying the rest of your monthly bills, Vincent says to consider an extended warranty.

Take a good look at your driving needs — are you planning to run up the odometer quickly? If so, the warranty from your car’s manufacturer might become obsolete sooner than you planned, making an extended warranty a smart investment, according to Vincent.

Decline the extra coverage

Almost all extended warranties have limitations, including restrictions on where you can service your car, making auto repair even more inconvenient. Then there’s the risk that you’ll spend more on the warranty than what you end up paying in repairs without the warranty. Instead of buying a plan to cover repairs and maintenance, consider depositing the money you were going to spend on the warranty into an account dedicated to auto expenses.

An extended warranty definitely offers an added layer of protection and security while you own your car, but it can be an expensive purchase that may not pay off down the road. However, if the added peace of mind delivered by an extended warranty is priceless in your mind, then an extended warranty is a smart move — just make sure to thoroughly research the warranty’s protections and exclusions before you sign.