Is an Extended Car Warranty Worth It? 3 Reasons To Think Twice
An extended warranty — or vehicle service contract (VSC) — pays for maintenance costs on your vehicle after the factory warranty ends as well as covers some things that the factory warranty may not. When you purchase a vehicle, you’ll typically be asked if you want to purchase an extended warranty and while it may sound good, there are some reasons why you may want to skip the extended warranty altogether.
According to Cars.com, an extended warranty can offset the cost of repairs to the vehicle's major systems. This includes the engine, transmission, electrical systems. It doesn’t cover all repairs, however, so even if you have an extended warranty, you still may be left to pay for some repairs out-of-pocket.
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To take a closer look at why you may not want to buy an extended car warranty at all, we reached out to Ryan Hartman, founder and chief marketing officer of Chaiz, the first comparison site for extended car warranties.
Hartman said VSC costs are around $1,000 per year or around $80 per month. Over the course of 10 years, this extended warranty could cost $10,000 or more. While this makes sense if you have to repair the transmission or complete another expensive repair in that time, below are three factors you should consider before signing the contract.
You Buy a Reliable Vehicle and Have a Factory Warranty
Unexpected repairs are just that — unexpected — but you can reduce the likelihood of a breakdown by buying a reliable vehicle. “I wouldn’t get a warranty if my car is still covered under the factory warranty or if I specifically bought a car known for its reliability for the first 5 years and 100,000 miles of ownership,” Hartman said.
You Have Enough Money To Self-Insure
Extended warranties can come in handy if you don’t have the financial reserves to cover a major repair. However, Hartman said you can potentially skip purchasing this coverage if you have enough money in the bank to self-insure up to $10,000. While median non-maintenance repair costs fall around $800, “unlucky people can need transmission replacements which can cost $8,000 to $10,000.” He knows this first-hand, since it happened to him.
You Maintain Your Vehicle Well
This could go without saying, but it’s important to note that even with an extended warranty, you’ll be responsible for maintenance like oil changes and new tires. If you’ve purchased a reliable vehicle and only expect to pay for routine maintenance, the extended coverage may not be necessary.
This is especially true if you have the financial reserves to cover larger repairs as discussed above. Hartman also recommended finding a trusted mechanic that you know won’t rip you off.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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