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Should You Buy A New Car Extended Warranty

Buying a new or used car involves lots of decisions. What color do you want? How will you finance your purchase? Should you buy an extended warranty? An extended warranty can give you peace of mind after buying a new or used car, but these agreements have their limits and aren't always worth the cost. Learn how extended warranties work, when you may want one and other ways to cover the cost of car repairs.

should you buy a new car extended warranty

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New vehicles are covered by the manufacturer's warranty (or factory warranty) for a certain number of years or miles. Factory warranties are free and usually include both bumper-to-bumper and powertrain warranties.

Powertrain warranties cover the parts that put the vehicle in motion, including the engine, transmission, driveshaft, axles and differential. The average powertrain warranty lasts five years or 60,000 miles, whichever comes first.

You can buy extended warranties from auto dealers, vehicle manufacturers and independent companies. Dealers often suggest purchasing an extended warranty when you buy a car, but you can buy one at any time.

The cost of extended warranties varies depending on coverage, warranty length, the vehicle's predicted reliability and other factors. Warranty companies aren't regulated the way insurance companies are, so there are no restrictions on what they can charge. A recent survey reports the median price of an extended warranty was $2,458, but prices ranged from $1,615 to $3,208.

It's generally best not to buy an extended warranty at the time you buy a car, since you won't use it for several years. Wait until the manufacturer's warranty is nearing expiration or the deadline to purchase coverage is approaching.

Similar to an extended warranty, car repair insurance covers mechanical breakdowns and repairs that car insurance doesn't pay for. Car repair insurance is usually limited to newer cars, so it's not an option for everyone. However, it generally costs less than an extended warranty.

Purchasing a new car with a long factory warranty can help safeguard against expensive repairs. Hyundai, Kia and Mitsubishi vehicles all boast bumper-to-bumper warranties of five years or 60,000 miles and powertrain warranties of 10 years or 100,000 miles, whichever comes first.

Rather than purchase an extended warranty, your money might be better spent paying a bit more for a car whose predicted reliability is better than average. (Consumer Reports and J.D. Power are good sources of reliability data.) Then follow manufacturer recommendations for regular maintenance to keep your car in good shape.

Some warranty plans include extras, such as towing, roadside assistance or trip interruption protection. Many extended warranty plans require you to pay a deductible toward repairs, while some will pay every dollar of the repair bill.

Extended car warranty programs have different ways of covering repairs. Some require you to get pre-approved before any repairs are done and will reimburse you for the cost. Others work directly with the shop and pay them directly. Be sure to read the fine print in your contract before you approve any work you expect the warranty company to cover.

An inclusionary extended car warranty covers parts specifically listed in the contract, and not any parts that are not specified. Exclusionary vehicle service contracts cover everything except items listed explicitly as non-covered parts.

Typically, extended car warranty programs offered by automakers require you to visit one of their franchised new car dealerships to get covered service. Third-party providers may have you go to dealerships, networks of approved shops or any ASE-certified repair facility.

Ask yourself, if a company intentionally violates the law by ignoring the National Do Not Call Registry, is it really a company with which you want to do business? The answer should be a decisive no. As we mentioned earlier, checking a company out with the Better Business Bureau or the local consumer advocacy organization where they are located can keep you from losing thousands of dollars.

The length of the warranty varies by manufacturer, but many offer bumper-to-bumper warranties for three years or 36,000 miles, whichever comes first. Powertrain warranties may last for up to 60 months or 60,000 miles.

I have gone over a decade without buying an extended warranty. Along the way, I learned a thing or two about the practice which seems to dominate the time and energies of associates and salespeople at many retail locations. The extended warranty market is big business. In fact, companies often outsource extended warranties to larger insurance companies. These companies then stuff these policies with limitations and conditions designed to make it more difficult to actually make a successful claim.

The salesperson selling the policy also typically gets a bonus or commission. And of course, the insurance company backing it makes money. All of this should give you a very clear picture that an extended warranty is NOT in the best interest of the end-user.

But just as you've breathed a sigh of relief, you realize that you are walking into the finance and insurance (F&I) office to sign the contract. Once inside that room, the F&I manager will likely offer you things such as paint protection, prepaid maintenance plans, theft-recovery systems and a road-hazard warranty for your tires. But one of the priciest products offered will likely be the extended car warranty.

It is important to note that you have the option to purchase this auto warranty any time before the manufacturer warranty expires. You can even purchase an extended warranty after the manufacturer warranty expires, although the price will go up considerably.

You might already have asked the five questions that should precede the conclusion of a new car deal. But now it is time to ask yourself five extended car warranty questions. They'll help you decide whether this vehicle service contract is worth it, and they'll help you get the best price.

Before we get to the questions you should answer for yourself, here's one you'll hear from the finance manager: "Do you plan on keeping this car for a long time?" It's a common question, and it's worth your consideration. Do you get tired of a car by its third year? If so, paying for an extended car warranty doesn't make much sense since the manufacturer's warranty will still likely be in effect. But if you are someone who drives a vehicle until the wheels fall off, the extended car warranty might be worth considering. But how long you'll keep the vehicle isn't the only consideration. Here are five questions to think through before you decide.

Many dealerships offer third-party warranties from companies with varying track records. If you are going to purchase an extended car warranty, make sure it is backed by the automaker, not just the dealership or some other company. You can use a manufacturer-backed extended warranty at any dealership across the country. A third-party vehicle service contract might be good only at the dealership that sold it to you.

It's unlikely that an F&I manager will be willing to let you shop around on your phone while you're sitting at his or her desk with a pile of purchase paperwork between the two of you. This research is best done before you go to the dealer to finalize your auto purchase. If buying the vehicle is already a financial handful, you can shop for a better price on the extended auto warranty after the sale. Here's how to do that.

Get a price quote from the F&I manager for the warranty that's offered. Then shop it around by phone with F&I managers at other dealerships, simply to compare prices on the car you're getting ready to buy.

The F&I manager at the dealership at which you're buying the vehicle might say that the price of the extended car warranty is not negotiable. That might not actually be the case. If you check with other dealers, you'll find that some of them do have a lower asking price for the same product. Or they might be more willing to negotiate.

The only benefit to getting an extended auto warranty as you purchase a vehicle is the ability to wrap the warranty's cost into your financing. But unless you've shopped in advance and can negotiate a lower price for the extended warranty on the spot, this route could cost you more in the long run.

Have other cars you've owned had the kinds of problems that would have been covered by a warranty? If you are considering a road-hazard tire warranty, for example, think about how many times you've had a flat tire. If there is a lot of debris on the roads in your area or if you've had several flat tires in a short span of time, a road-hazard warranty may be worth looking into. But if you can't remember the last time you had a flat, you might not need the coverage.

You also can add up how much you have spent on out-of-warranty repairs in the past and compare the total to the warranty's price. For example, if you've paid $500 for repairs that occurred out of warranty, weigh that against the cost of the extended warranty.

Some F&I managers can make you feel that saying no to the extended warranty is like playing Russian roulette with your vehicle. You never know when that costly repair bullet might strike. But new cars are more reliable than ever. And the data seems to indicate that most people might not need an extended warranty.

If you still want an extra measure of security, you can self-insure. Financial guru Dave Ramsey suggests setting aside half of what you would pay for a warranty and using that money to handle any car repairs that might come up.

No matter what advice comes their way, some people simply aren't willing to take chances or prefer the convenience of an extended warranty. They're more comfortable knowing that any major repairs will be taken care of. There's nothing wrong with that. If you're a belt-and-suspenders person, just make sure you ask the right questions before you buy an extended warranty.

Years after the original warranties are gone, extended car warranties provide protection for consumers. Also known as service contracts, they are a popular plan offered by manufacturers and third parties. But are they right for all? We shall explore the pros and cons of extended warranties to assist you in making an informed decision. 041b061a72


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