Autosanity|Just another WordPress weblog

I thought that extended warranties would be a great topic after I heard that a young couple had just purchased their first new car, a Toyota Corolla, and bought an extended warranty from the dealership.  I’ll tell you right now - I think that extended warranties on ANY car, new or used, is a terrible idea. And, in this case, an extended warranty on a new Toyota Corolla? When you look up “bulletproof” in Webster’s dictionary - you’ll see a picture of a Corolla. I mean, practically speaking, this is one of the last cars on the planet that could, even remotely, benefit from any extra “protection.”

I came across a great article from Lucy Lazarony of Bankrate.com discussing the dangers of wasting money on such frivolity that should be read before you get anywhere near a car dealership. I’ll add a few thoughts of my own (naturally) on the subject that I hope will convince you to not waste any money on an extended warranty.

• High pressure sales due to huge profit margins. Dealers often markup these warranties by 100% or more. And, for this profit, the dealer only has to push a few more pieces of paper - no effort here, unlike undercoating, window tinting and “Scotch-guarding” the interior. So, the incentive to push extended warranties is huge. Meaning that you may be under intense pressure to get the warranty. Just say NO.

• Most newer cars already have some warranty. If the car you’re buying is less than 3 years old, check with the manufacturer (go to their website directly) to see if you can transfer the warranty to your name. Remember, if you buy a warranty advertised as “8 years and 80,000 miles,” the factory warranty will ALWAYS be the primary protection for the vehicle. In this case, if the factory warranty is for 3 years or 36,000 miles, then that amount of time and mileage is wasted with an extended warranty. By law, all fuel and emissions -related hardware are warranted for 100,000 miles.

• Statistics show that most problems will show up within 60,000 miles. For many cars sold today, the factory warranty will cover the majority of problems that show up before 60,000 miles. It’s a bit like gambling, but when you buy the extended warranty, the odds that you ever get your money’s worth are stacked so highly against you - much worst than your odds in Vegas.

• Was it abuse, or just normal wear and tear? This is the type of problem I read about most frequently concerning the extended warranty. Don’t fool yourself into believing that a warranty will jump right in and repair your vehicle immediately after a problem. On the contrary - these companies have a HUGE incentive in finding ways to NOT fix your car. There will be some kind of an investigation, mechanic’s opinions, etc. to deal with. And, if the decision is not one you like, your car will be sitting, dead and/or in pieces while you fight things out. Often, the grief in using a warranty far outweighs any possibility that you actually will get your car back on the road, unless you pay for it yourself.

So, take that money that you would have spent on a warranty ($399 - $2500) and use it to get that car paid off, get rid of some high-interest rate credit cards, or start a Roth 401k for a happy retirement!