Are Extended Auto Warranties a Scam?

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The following is a guest post from Bailey Harris. Bailey writes about online car insurance quotes for 

Are Extended Auto Warranties a Scam?

When you buy a new car you will more than likely be offered the opportunity to purchase an extended warranty, which is intended to protect you over and above the manufacturer’s warranty. 

In theory, these warranties sound like a good idea, but many people consider them unnecessary–some even call them a scam. It’s a debate that will probably go on for a while because the answer is subjective. 

Are extended auto warranties a scam? The truth is that it depends on the buyer and the situation.

What Is an Extended Warranty?

An extended warranty is basically an insurance policy. It is designed to provide you with financial protection after the manufacturer’s warranty expires. The standard in the automotive industry is a three-year, 36,000 mile warranty. There are exceptions, but that is the most common. 

An extended warranty will kick in after that and provide coverage for whatever length of time you choose. You will also have to decide exactly what is and isn’t going to be covered. Of course, the longer the period of time and the more detailed the coverage, the bigger your payments will be.

Is It Necessary?

The decision on whether or not to buy an extended warranty is totally up to you. No one can force you to, but car dealers and manufacturers would like to make you think you’d be sorry if you didn’t. In fact, they seem to try very hard to sell them, which would lead you to believe they’re extremely profitable–for the dealer and manufacturer. Following that thought to its obvious conclusion, the amount of repair work done under the extended warranty doesn’t measure up to how much you pay for them, otherwise they wouldn’t push them so hard.

Are They Simply Selling Peace of Mind?

Since those who are selling the warranty wouldn’t be doing so if they thought they’d lose a lot of money on it, it stands to reason they don’t think they have much to fear. Is what they’re selling you peace of mind? This is what makes it a subjective proposition–some people consider peace of mind extremely important; others would rather take the gamble. After all, isn’t any type of insurance designed to give you peace of mind?

Decisions, Decisions

As with any other type of insurance, the decision to buy an extended warranty should be approached pragmatically. Is the protection you receive worth the cost? In order to make an intelligent choice there are a number of things to consider. The more you know about an extended warranty and about the vehicle you intend to buy, the easier it will be to make an informed decision.

Repair Record

Research the repair records on the type of vehicle you’re going to purchase. There are a number of consumer reporting agencies that keep track of that sort of thing. If your vehicle has a fairly good record of reliability, then you may want to forego an extended warranty. On the other hand, if it is prone to certain problems after a lot of miles, the warranty may not be such a bad idea.

How Long Will You Keep the Car?

If you don’t plan to keep the car much past the time the manufacturer’s warranty will expire, then you probably don’t need the extended warranty. However, if you plan on driving the car until the wheels fall off, an extended warranty may well pay for itself over the course of your vehicle’s life.

Understand What You’re Getting

Before buying an extended warranty, make sure you understand exactly what it covers and how much the deductible is going to be. As with any type of service contract, you will probably have a choice in what is covered. Does the warranty pay for electrical problems? Is the drive train covered? How about labor? How much will you have to pay out of pocket before the warranty kicks in? These are all valid questions that you should consider before deciding whether or not to get the warranty.

Is it a Scam?

This is something you’re going to have to decide for yourself. It really comes down to two basic questions: Will you sleep better with an extended warranty? If so, is it worth the cost? Do as much research as you can, understand your options, and then make a decision. There is one other piece of advice that applies to this situation (and a lot of things in life)–once you’ve made a decision, don’t second guess yourself.

How about you all? Have you ever purchased extended warranties for your car or other assets? If so, was it, in your opinion, worth the added cost? 

Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

  • Great article here Bailey! I very much enjoyed it, as it is not a topic that often gets posted about on My Personal Finance Journey.
  • @ Are auto warranties scams? Personally, I believe that they are not scams (regardless of how expensive they are), unless they mislead the purchaser to believe that they are buying a certain type of coverage, when in reality, they are not.
  • @ Are extended warranties worth the cost? The answer to this question is slightly more complex. However, I believe that the answer in most every case is “no,” they are not worth the added cost. Most of the time, these warranties are just ways for the dealer or selling party to make more money. 
    • Instead, I prefer to keep a sizable emergency fund to enable me to have the reserves needed to cover costs of unexpected occurrences.

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  1. I did once on my flat screen TV. I don't think it was worth it. I would feel differently, if the TV had a problem during the extended period. It did not, but I did have it serviced just before it ran out.

  2. frugalforties says:

    I am a big believer in extended warranties if you're buying a new or lightly used car. I had one on my Saturn which I bought new. At close to 100,000 miles (which was the limit of the warranty) I took it in and had them do a top to tail check. I got several thousand $$ worth of work done for the cost of the $50 deductible and the $29 oil change.

    I drove the car for a further 6 years after that.
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  3. I think they are a scam because they are always trying to find a excuse to deny a claim. my sister was denied a claim because the adjuster claimed the fluid in her transfer case was low, although the mechanic who originally looked at the vehicle said this was not true. she had proof that she did all the recommended vehicle maintenance and was still denied. They are a scam and I will never again purchase one.

    • Thanks for sharing those experiences Melanie! That has pretty much been my take as well. There are soo many excuses that can be used for why you won't be eligible to collect on the promised services.
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