If you’ve ever bought a car at a dealership, you’ve been asked about purchasing an extended warranty. The question usually comes after you’ve been sitting in an uncomfortable chair for hours and all you want to do is sign your papers and get out of there. What should you do in the moment? Is an extended warranty a good idea or just a scam?

Well, first of all, don’t make the decision in the moment. Whether you buy your next vehicle from a dealership or a private sale, walk in with your auto financing lined up and decisions about an extended warranty and GAP insurance already made.

So, how do you decide whether to say yes or no? There are many situations where it doesn’t make sense to purchase an extended warranty, sometimes also called a vehicle service agreement. But that’s not to say you shouldn’t get one. Sometimes an extended warranty is a good choice for protection and peace of mind. Here are some guidelines to help you make your choice.

You’re buying a new car. 

No. Brand new cars come with a manufacturer’s warranty that will typically last at least three years and sometimes longer. If you still have the car when the original warranty expires, think about it then.

You’re leasing a car. 

No. Since leasing is only an option for new cars, it’s the same situation as buying new. Most leases aren’t longer than three years anyway, meaning you’ll likely return the car while it’s still covered. If you purchase the car when the lease ends, or have a longer lease, consider additional coverage down the line.

You’re buying a used car that’s just a couple years old. 

No. If the used car is only a year or two old and still covered under the original warranty, there’s no need to purchase additional coverage yet. Yes, you could buy it now, but you can’t use it until the manufacturer’s warranty expires, and if you wrap it into your vehicle financing, you’re paying for a product (with interest) knowing you won’t be able to use it for another year or two.

You’re buying a used car that’s a little bit older. 

Maybe, let’s get a little more information. Let’s assume the vehicle you plan to purchase is no longer covered by the factory warranty. Answer these questions:

• Will your loan be short or long? A two-year loan on a three-year-old car means your car will still only be five years old when you finish paying it off. On the other hand, a five-year loan on a five-year-old car means you won’t have it paid off until the vehicle is ten years old. If you’re still making payments on a vehicle, you need it to keep running. An expensive repair on a vehicle of that age might not be worth it depending on the car’s value, but if you don’t fix it you’ll still owe money on a car that doesn’t work.
• Is the make and model known to be reliable? Arguably, if your car doesn’t have a good track record with needing major repairs, you shouldn’t buy it. But if you’re looking into an extended warranty for a car you already own because the factory warranty has ended, that ship (car?) has sailed. If you have a higher than normal chance of experiencing mechanical failures, you have a good reason to purchase additional coverage.
• Would an unexpected repair bust your budget? If you’re living within a tight budget and don’t have a big savings cushion (maybe because you’re working hard to pay down debt), an unexpected repair can really throw off your finances. A typical transmission replacement will run you $2,000 or more.

A key thing to remember about extended warranties is that they’re really a type of insurance. Asking, “Is it worth it?” isn’t easy to answer. Your regular car insurance protects you from accidents. If you never have an accident, is your car insurance worth it? Well, you don’t have a choice about having that insurance, but in terms of return on investment, it’s a crummy one.

The same holds true about an extended warranty. It won’t be a good return on investment if you don’t use it. If you ask the questions above, you’ll be able to better guess the likelihood of needing it, but life’s a gamble, and you can’t know for sure.

Through our partnership with IWS, we offer Vehicle Service Agreements that we believe in. You can customize the level of protection you want and take the time you need to review the quote and decide if it makes sense for your vehicle. Best of all? We’ve carefully vetted our vendor to make sure the coverage is exceptional and the price is great. Our Members have reported that our quotes are typically 50% less than they get from a dealership, and with better coverage.

Do you want the peace of mind and wallet protection a Vehicle Service Agreement can offer? Give us a call to start your custom quote: 484-223-4216.