Forgive us finance community, for we have sinned. We bought a brand new vehicle a couple weeks ago. Our vehicle at the time was in need of new tires, and some potentially expensive maintenance that I had been putting off. Also we wanted something a bit larger as it was uncomfortable for me to drive long distances even though it was my wife’s primary driver. We bought it gently used and it served us well for 7 years or so. Here is a little background before getting to the main point, vehicle warranties.
Buying new wasn’t really what we wanted to do initially. I mean who wants to take it on the chin after the first two years of big vehicle depreciation? We test drove several used vehicles and had it narrowed down but couldn’t find the color, engine, and options that we wanted in a used vehicle anywhere in our state. It was even surprisingly difficult to find a new model with what we wanted but our dealer did track one down. We were able to come together on a price after some back and forth negotiations.
Let’s fast forward to the good stuff. We put a good chunk of the money down, from a mix of cash and money from the trade in. We could have just wrote a check for the whole amount but interest rates are low enough to string it along for a few months. It will be aggressively paid off regardless. So we go to sit down with the finance person to sign the fun paperwork and she presents us our payment options, all with extended warranties built in! There was no asking if we wanted one, it was assumed. That didn’t resonate well with me.
Warranties And Their Cost
As if vehicle depreciation isn’t bad enough, when you throw the price of warranties in, the purchase cost inflates drastically. The cheapest extended warranty option for us was $45/month. So that means a person would be paying $1,620 for nothing initially as the first three years have full coverage on the vehicle. The factory power train warranty spans 5 years and that covers the engine, transmission, and drive train. Items that I would not love to replace granted but there is decent coverage if something happens. The most expensive warranty option was over $100/month. I don’t remember the exact amount, probably because I was so taken back by it all. Oh but that did include oil changes hahaha. I know that repairs aren’t cheap for things these days but I would rather pocket that money in the event that something goes wrong. Knock on wood, I’ve saved quite a bit of money by doing it this way so far.
Let’s face it, warranties are a big money maker for dealerships. I have heard that many auto dealers lose money on the sale of new autos so it’s important to them to sell warranties. I’m not sure on what commission the finance person gets from it but she was selling hard. She recited the lines well about the many electrical components the vehicle has and how expensive the tires and rims are. And when we declined? You’ll never guess that the price magically came down! Yes, even warranties can be negotiated if you interested in one. It reminded me of haggling with a cable/dish company on the monthly bill.
According to Dave Ramsey’s blog, a recent Consumer Reports survey found that 65% of their readers surveyed spent more on their warranties than savings from repairs. Dealerships wouldn’t offer them if they lost money on the deal. Another thing to watch out for are the telemarketers pushing third party warranty scams. I would say that is the most common type of telemarketing call that I get. I have read also that people still have out of pocket repairs on items that they think they have coverage for but don’t. Probably lost in the fine print I would imagine.
The Bottom Line
I don’t find extended warranties to be worth the price. Cars are generally reliable for at least the first 10 years of their life. Change the oil and do the routine maintenance. Admittedly there are lemons and that does happen on occasion unfortunately. However, with the money saved from not purchasing these you will most likely still come out ahead. Certainly if you don’t plan on keeping the vehicle long term, an extended warranty would be foolish.
If you do plan to keep the car long term and want the peace of mind of a warranty, remember to negotiate. I have a feeling the dealership would have lowered the price even more if I would have showed interest. As they say, everything is negotiable!
Do you guys opt for extended warranties? Have any good or bad experiences?