Whether buying a new car or a used one, reliability is one of the main attributes that consumers look for in a vehicle. Consumer Reports’ advice is simple: Buy the most reliable car you can afford to avoid paying for costly repairs later. But there will always be people who want more protection than a reputation for reliability can provide.
That’s where extended warranties, often called vehicle service contracts, come into play. These agreements work much like health insurance and can give consumers the peace of mind that comes with having a fixed cost for maintenance and repairs. But before you go shopping for an extended warranty, keep in mind that it could cost you more than it’s worth, if it’s worth anything at all. Extended warranties are a vendor’s way of making money.
“Extended warranties are usually bad business,” says Jack Gillis, executive director of the Consumer Federation of America. “First of all, they are not guarantees and you do not get the same legal protection as with a guarantee. They are service contracts, or rather, overpriced insurance plans.”
Consumer Reports has found in surveys of its members that most shoppers never used warranties after purchasing them, and those that did paid more for these plans than they received in benefits. It is not surprising, since it is a lucrative business. However, and despite not recovering the investment, many customers were satisfied with their decision due to the protection against unexpected and expensive repairs.
“Extended warranties continue to be a great challenge for consumers”, says Chuck Bell, director of programs for CR’s division of consumer advocacy. “Finding out if a plan is fairly priced or a good value is difficult because they are complicated legal agreements. In addition, dealers can apply large surcharges to contracts, with different rates for each customer. Most consumers probably want to “self-insure” and take the financial risk themselves.”
This is the biggest challenge consumers face: Is it worth buying the extra protection? ? And who can I trust to sell it to me?
Bell also says to be careful when receiving pre-recorded calls from companies that sell extended warranties. Robocalls and scammers abound.
“It’s a very delicate situation when you’re sitting in the dealership’s financing and incentives office and they tell you that you’re a fool if you don’t invest between $20 and $30 more per month for the extra protection,” says Rory Joyce, director of Credit Karma’s auto division. But that nominal increase in monthly payments adds up, and Gillis says that many extended warranties are a replica of those offered by manufacturers.
“Also, the fine print often prevents them from being able to get the benefits”, he says.
You also have to take into account the age of the car. “If you’re buying a new car, it doesn’t make a lot of sense to buy additional warranty protection, because repair costs when a car is just out of factory warranty are usually low,” says Joyce.
While CR often recommends that one be very careful about extended warranties, there are situations where taking one out might be warranted, says Alain Nana-Sinkam, vice president of strategic initiatives at TrueCar.
“ As with many of these options, it depends on your plan as an owner and your value equation,” he says. In other words, if you plan to keep your car until the wheels fall off, it makes much more sense to invest in additional protection than if you change cars every few years. Nana-Sinkam says that anyone interested in purchasing an extended warranty should be well versed in what it covers — the drivetrain, electronics, and, in the case of cars with expensive wheels and low-profile tires, wheel and tire coverage. tires) and whether or not the plan has a deductible.
“Cars are increasingly being driven and managed by computers, and fixing those components when they break can be expensive,” he says. “A lot of people don’t realize that run-flat tires can’t be patched like their old-school counterparts, and they’re very expensive. So a tire and wheel (warranty) package, covering road risks, could be a good option.”
Credit Karma says that while extended warranties can bring peace of mind in When it comes to potentially costly problems, there are a number of drawbacks to be aware of. First of all, if the coverage is included in the car loan, the cost will have interest. Also, plans often don’t cover everything, so you might be able to avoid any unpleasant surprises by finding out what yours does and doesn’t cover. Also, check the contract for limitations on where you can and cannot have your vehicle repaired, as well as any depreciation clauses that may reduce the amount paid for repairs based on vehicle mileage. And find out who is responsible for paying claims. If you purchased your policy from a dealership or agency that went out of business, the policy will no longer cover repairs you paid for in advance through installments.
According to Credit Karma and the Consumer Federation, the best One way to save money when it comes to planning for car repairs is to make payments to yourself in an emergency fund. That way, Gillis says, if you don’t end up using the money for repairs, you can put it towards your next car purchase. But that doesn’t work for everyone, Joyce points out.
“It all depends on who the consumer is,” she says. “If you want peace of mind and are not that organized, perhaps taking out an extended warranty is a good idea. There are other people who can save money by taking a more practical route and setting aside funds for planned repairs.”
Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2022, Consumer Reports, Inc.
Consumer Reports has no financial relationship with the advertisers on this site. Consumer Reports is an independent, nonprofit organization that works with consumers to create a fair, safe, and healthy world. CR does not endorse products or services and does not accept advertising. Copyright © 2022, Consumer Reports, Inc.