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Should I Buy an Extended Warranty on a Used Car?

Posted by Charlie Maniates | Aug 20, 2019

Vehicle repairs can be costly, so car shoppers might seek upfront protection in order to mitigate the resulting expenses. An extended warranty, also known as a vehicle service agreement, fulfills this desire by covering most major problems that may arise after the original bumper-to-bumper warranty has expired. However, the cost of an extended warranty may actually end up exceeding the value of the repairs that it covers.

The peace of mind that accompanies an extended warranty might alone be worth it to overcautious folks who have the necessary financial means to afford one. But those who need to be more financially strategic should consider the data that will help them arrive at the right decision.

Why You Might Forego the Extended Warranty

A Consumer Reports survey from a few years back determined that 55 percent of vehicle owners who purchased an extended warranty didn’t use it at all throughout the entirety of the coverage length. Additionally, those who did use it paid hundreds more on average for the coverage than they would’ve paid for the repairs out of pocket. At a median cost of just more than $1,200, an extended warranty may force you to essentially throw away a significant amount of money.

Rather than pay for an extended warranty, it might make more sense to set aside a fixed amount of money on a regular basis to build an emergency fund dedicated to any vehicle repairs you might need in the future. This ensures that you can afford to fix problems without losing money on a policy that might never live up to its cost.

Why an Extended Warranty Might Make Sense

Shoppers who are interested in a vehicle with a subpar reliability history might find an extended warranty useful. J.D Power reliability ratings will help you research general data about models you’re interested in for insight into their long-term performance. Consumer Reports is another source of reliability data (subscription required). You should also be sure to find out as much information about the specific vehicle’s past as you can and have a certified independent mechanic perform a full inspection so you can get a solid sense of where problems may lie.

After these steps, if you believe that the car you choose necessitates an extended warranty, be sure to fully understand what the warranty covers and calculate whether it’ll fit your budget. You’ll want an affordable, comprehensive policy that protects problems you may actually be at risk of having during the specified coverage length.

The Bottom Line: Carefully Evaluate the Importance of an Extended Warranty

While the peace of mind that comes from knowing you’re backed by a vehicle service agreement can be valuable, it’s important to determine just how useful it’ll be over the course of its life. Understand the problems a car may be susceptible to, calculate what it might cost to repair them and compare that with the coverage cost to see if the warranty is worth the money. Taking the time to crunch these numbers could save you hundreds, or even thousands, of dollars.

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