We advise our customers against purchasing extended warranties. Evidence proves that, in most cases, the cost of the warranty is far more than the benefit received. The concept we operate under is very simple. Any warranty company has to make a profit or it goes out of business. It must have significant overhead, with a building and employees and field agents to go out and check a vehicle’s needs. For example, if a shop calls and says, this vehicle needs a new transmission, they send an inspector out to make sure that the stated need is valid.

With this huge overhead and the need to make a profit, that most certainly means that as a group, the people who buy extended warranties are paying far more than the actual cost of repairing their vehicles. Maybe a few people win, but most people lose.

We recommend you take the money for the warranty product they’re trying to sell you, put it in the bank where it’s earning (a little) interest and use it to do routine maintenance on your car.

There are two catches with the warranty policies. First, they may sound like they cover everything but many routine failures aren’t covered. Second, nothing is covered if you haven’t had the factory recommended maintenance performed.

So here’s the trick. If you do the factory recommended maintenance, the chances of having a breakdown on those covered components are very slim. You don’t need an extended warranty because you know maintenance pays off. You win by keeping your money and investing it in maintenance rather than purchasing an extended warranty and hoping that if anything goes wrong, it will be something that’s covered.

If you still decide to purchase an extended warranty, please—do not include it in the financing of your car. It truly is not a good investment, and paying interest on it only makes it worse.

Want more great advice on saving money on car repairs? Order Russell McCloud’s book Knowledge is Power by clicking here

Posted in Car Advice