Is Buying An Extended Warranty On Your Car Worth It?

You just got done picking out your car and are invited to finish the deal by talking with the “finance guy.” This typically involves sales pitches for extended warranties on everything from your tires to your favorite Beatles CD…okay, that last one might be a stretch but they really do offer protection on just about everything.

Have you ever questioned whether it was in fact worth it? In 2013, Consumer Reports did an extensive survey to find out the answer to that question and in short, the answer was no.

Here’s the data*

Average Extended Warranty Cost: $1,214

Percent of purchasers who used it at least once: 45%

Median savings on repairs for those who used it: $837 (they still lost $377 on their $1,214 purchase)

So more than half of all purchasers never used it, and of those who did, the majority didn’t use it enough to justify the cost. Were there a few people who got their money’s worth? Sure, but 8 out of 10 didn’t. For that reason, I’d suggest that you forgo the warranty purchase and sock away the $1,200 for future car repairs. Then save a modest amount each month based on the value of your car.

One interesting note was the likelihood of using the warranty varied significantly by car type. Below is the probability of using a warranty at least once by brand.

Most likely

1. BMW – 71% used it

2. Chrysler – 65%

3. Dodge – 63%

4. Mercedes – 60%

Least Likely

1. Honda – 39%

2. Toyota – 39%

3. Subaru – 36%

With that said, the intangible benefits of the warranty might outweigh the financial cost. It could provide you peace of mind knowing that if something breaks, not only are you not on the hook, but you don’t have to spend the time and energy finding a mechanic who won’t rip you off. If that is worthwhile to you and you can afford it, buy the warranty – but don’t consider it an investment, consider it a cost.

And if you do decide to buy it, don’t be afraid to haggle. Those who did saved $325 on average!

Thank you for reading,

 Alex

*Consumer Reports. “Extended Car Warranties: An Expensive Gamble.” Consumer Reports, 28 Feb. 2014, www.consumerreports.org/extended-warranties/extended-car-warranties-an-expensive-gamble/.

This blog post is not advice. Please read disclaimers.