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Pros and Cons of Buying an Extended Warranty for a Car

4/22/2013
According to the results of the J.D. Power and Associates 2013 Vehicle Dependability StudySM, a better warranty is not one of the most important factors considered by consumers when choosing a new vehicle. The same study, however, consistently finds that consumers say reliability and durability are the most important factors in their choice of vehicle.

Reliability and a better warranty are not dichotomous concepts, yet in J.D. Power research, the gulf between them is significant. This may be due to recent expansions of original warranty coverage by many automakers, which makes warranty coverage a non-issue for many buyers. It could be that people value a car's actual track record for reliability, and not whether someone else is going to pay the bill if a breakdown occurs. Or it may be that consumers know that if they want a longer warranty, they can buy one.

Today, consumers are keeping their cars for longer periods of time than ever before, and because new vehicles are loaded with complex technology and electronics, an extended warranty may be appealing. Even the most generous of original warranties supplied by the car companies expire after 10 years or 100,000 miles of driving, while many last for just 3 years or 36,000 miles. This article takes a closer look at some of the pros and cons of buying an extended warranty (also referred to as an extended service contract) for a car.

Pro: Consumers Can Tailor Extended Warranties to Fit Specific Needs

Because original warranties provided by auto manufacturers vary with regard to mileage and time limits, companies that provide extended warranties offer a greater variety of products and services than in the past. For example, if a vehicle is equipped with a lengthy powertrain warranty but a short bumper-to-bumper warranty, the third-party warranty provider can extend only the shorter warranty coverage. Another example would be the provision of 24-hour roadside assistance for new vehicles that don't have that coverage from the auto manufacturer.

Pro: Extended Warranties Cover Costly Repairs and Pricey Technology
Modern vehicles are more complex than ever, filled with expensive technology, electrical wiring, and computerized equipment. When such systems fail, it can be expensive to diagnose, isolate, and repair the problem. Given that new cars, trucks and SUVs are more mechanically reliable than they've ever been, a vehicle's technological systems represent one of the main reasons to purchase an extended warranty. If you elect to buy one, be sure it includes these technology features, as well as other significant vehicle systems, by requesting an exclusion list from the warranty provider and examining it carefully prior to purchase.

Pro: Dealers Take Care of the Paperwork and Payment
When buying an extended warranty, those offered through the dealership and sponsored by the auto manufacturer tend to be more expensive, but in exchange for their extra cost, the dealer takes care of all the paperwork and the auto manufacturer pays the dealer directly for services rendered. Additionally, these dealer-provided and OEM-backed warranties usually allow the car owner to get the vehicle repaired at any dealership selling the same brand, anywhere in the country, removing restrictions that are sometimes included with other third-party warranty providers.

Con: Extended Warranties are Expensive
When you buy an extended warranty, you are placing a bet. Your bet is that your car will ultimately require more repairs than the cost of the warranty. The warranty provider is also placing a bet. The warranty provider's bet is that your car will not require more repairs than the cost of the warranty. One of you will win the bet, and considering the number of extended warranty providers there are, it would appear that the odds are not in your favor. Keep in mind, however, that most times the price of an extended warranty can be negotiated.

Con: Extended Warranties Don't Cover All Repairs
Extended warranty contracts are loaded with fine print. It is critical for a consumer to read this fine print, and to understand what the warranty covers, and what the warranty does not cover. A warranty provider worthy of your business will give a potential customer something called an "exclusion list," which will enumerate in detail those parts, systems, and repairs that are not covered by the extended warranty. Be sure to review an exclusion list before buying any extended warranty.

Con: Limited Access to Approved Repair Providers
Consumers who choose a third-party extended warranty that is not backed by the auto manufacturer may find that they have a short list of approved facilities that can perform covered repairs. If the vehicle breaks while on a trip, or if you move to a different region of the country while the warranty is in effect, such restrictions can render the warranty useless.

Con: You May Never Use the Extended Warranty
Obtaining an extended warranty for a vehicle is a little bit like buying health insurance: you might not ever need it, but if something happens and you have coverage, you could save plenty of money.

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