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Is it worth buying an extended car warranty? Peace of mind comes at a cost

Peace of mind comes at a cost

Last updated: March 28, 2015 09:00 AM

After dedicating an afternoon (or more) to test driving, negotiating, and completing a pile of paperwork for your shiny new car, don't be surprised if a bubble-bursting finance manager at the dealer gives a compelling pitch for an extended warranty. It is for your peace of mind, right? Well, not really.

The last-ditch effort to sell you a warranty, or various other unnecessary services, is the dealership's final assault on your checkbook before you tuck it securely away and drive off. Sure, the pitch is convincing: Should an expensive repair be necessary after the factory warranty ends, you'd be protected. No one wants a big, financial surprise, nor wishes to be stranded roadside. (Read "Watch for These Dealer Sales Pitches.")

But breathe deep and think this through. A survey conducted by the Consumer Reports National Research Center in late 2013 found that 55 percent of owners who purchased an extended warranty hadn’t used it for repairs during the lifetime of the policy. And, on average, those who did use it spent hundreds more for the coverage than they saved in repair costs.

Among survey participants who used their policy, the median out-of-pocket savings on repairs covered by extended warranties for all brands was $837. Based on a $1,214 average initial cost, that works out to a net loss of more than $375. Factoring those who didn’t use their policy, the median savings was zero. And that may have something to do with why satisfaction with auto­mobile extended warranties is among the lower rated of all products and services surveyed by Consumer Reports, and why only about a quarter of respondents said they would definitely get it again.

Read our complete report: “Extended Car Warranties: An Expensive Gamble.” And check our car buying advice.

Clichés about reading the fine print are especially appropriate when talking about extended warranties. The brochure may present the service plan as "comprehensive," but the contract will likely have numerous limitations, such as requiring documented service at in-network shops and covering only certain parts, rather than whole systems.

Rather than invest in an extended warranty, we recommend buying the most reliable car that suits your needs, budget, and taste . . . and then taking good care of it. Sometimes, this can mean spending more upfront for the right car, but the reward is typically lower ownership costs and even better resale value. But, if your heart is set on a model known to be unreliable, an extended warranty can provide some protection. Just approach with caution, negotiate the price, and be aware that if you roll the cost into your financing, you'll be paying interest on it for years to come.

Jeff Bartlett

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