Should I Buy an Extended Warranty?

You just bought a new car; it's perfect and runs like a dream. And it always will, right?

Maybe ... but odds are it'll have problems at some point. And regardless, you'll need to keep it maintained.

Every new car comes with a warranty that is guaranteed by the manufacturer, but these warranties expire and there's a chance you might need an expensive repair once it does. If you plan on keeping your car longer than a few years, you might want to consider purchasing an extended service protection plan, commonly referred to as an extended warranty.

What is an extended service protection plan?

After the manufacturer's warranty expires on your vehicle, you have nothing to protect yourself from expensive vehicle repairs. Extended service protection typically covers parts, labor, and sales tax (if applicable) required for replacement or repair of covered parts in your vehicle.

Why do I need one?

Let's face it; cars break down. Besides your home, your car is the second-most expensive item that you use on a daily basis. An extended service plan will insure that your vehicle is always in the best mechanical condition and can help you avoid expensive repair bills.

Here are more reasons why you might want to consider purchasing extended coverage.

Comes with additional benefits

Although the main advantage of obtaining a car warranty is to avoid the high cost of automobile repairs, many plans also come with additional benefits that cover much more than the manufacturer's warranty. Benefits may include 24/7 roadside assistance, towing benefits, lost key/lock-out services, trip interruption benefits and rental car coverage.

Covers items most warranties don't include

By law, emissions and safety equipment (airbags, seat belts) are well covered under standard new car warranties, but other services and repairs vary greatly between brands. When thinking about purchasing additional coverage for your vehicle, you should consider your driving habits and where you live. If you have a long commute or drive all the time, you'll get to that maximum mileage protected by your warranty pretty quickly. If you live in an area with extreme temperatures or near the ocean, rust accumulation can lead to all sorts of problems that a standard new car warranty typically won't cover.

For the most part, extended warranties offer three coverage levels. The first level covers the powertrain. The second level covers the powertrain and more components. The highest level provides comprehensive (bumper-to-bumper) coverage, which includes costly electrical systems repairs.

Avoids haggling

One of the main reasons to purchase a car warranty is to avoid the hassle and haggling that is common between mechanics and consumers. When you enter into a vehicle service agreement, you now have a claims department team that will deal directly with the repair shop. Ideally, you'll want a warranty that pays the dealership directly with a corporate credit card so all you'll have to do is pay your deductible, if you have one.

Increases resale value

Most extended service protection plans are fully transferable and can increase the resale value of your vehicle.

When should I buy it?

Extended service protection plans cost less the earlier you buy them. The cost for a good plan rises as your vehicle ages and accrues mileage.

If you buy the protection while still under your vehicle's original warranty, the provider will take that into consideration when calculating the cost. Since your car is less of a risk to protect while still under the original warranty, you will receive a much lower rate than if you had waited until the original warranty expired.

Where can I get the repairs done?

Most plans from reputable companies are customizable. They allow you to choose the repair location. You can go to your favorite mechanic, the original dealer, or any national chain that performs vehicle repairs.

Why can't I buy it from a dealer?

You can buy a warranty through your car dealer, but expect to pay as much as 50% more for the same coverage. Check with your dealer first and then compare quotes.

What should I look for when buying an extended warranty?

  • You should consider purchasing "exclusionary" rather than "inclusionary" policies. It's just as important to know what is not covered. Exclusionary coverage is usually what you get with your original manufacturer's warranty.
  • You should always see a contract before you pay anything. Avoid buying extended service protection over the phone. If a company will not show you the contract prior to purchase, they likely have something to hide.
  • Don't be strong-armed into buying a plan. If someone threatens to put you on a blacklist of any kind that would prevent you from being able to purchase a policy in the future, it's a scam. There is no such list. Look elsewhere to purchase your plan.
  • You shouldn't have to haggle over the price. The cost should be standard depending on your vehicle's model and make and the type of coverage you want to purchase. Be aware of false promises and gimmicks.
  • If the price sounds too good to be true, it is! If the price is too low, something is missing. Shop around to find different price quotes so you can determine a range.
  • Read the fine print. If the plan only covers labor charges of $70 per hour and your mechanic charges $80 per hour, you will have to cover the difference out of pocket.
  • Ask about the cancellation policy. Some will fully refund your money if you change your mind within 30 days and others have stiff fines for cancellations.
  • Do the research on your company. Check the Better Business Bureau, find out their credit score, and see who they're partnered with. Be wary if they have changed their name or are younger than five years old. If you have never heard of the company and they have no solid partners, do not purchase a warranty from that company.
  • If your vehicle has specialized systems, on board diagnostics, GPS and navigation services, ask how they are covered.
  • Make sure your coverage includes "wear and tear" and "complete seals and gaskets" coverage.

In the end, an extended service protection plan offers you peace of mind. And isn't that worth its weight in gold?

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