An extended vehicle warranty could save you thousands of dollars in repair costs if your car has major problems after the manufacturer’s warranty expires. That’s the upside, and there are plenty of people who swear by the prolonged protection. But critics argue that extended warranties, which also are called vehicle protection plans or service contracts, don’t always pay off.
Who’s right? Who’s wrong? The truth is, it depends. Not all extended warranties are created equal. Ultimately, the value you get from such a contract will depend on whom you buy it from, when you buy it and how well you understand the terms of coverage. Here are a few tips to guide your decision.
Don’t Be Pressured. Some auto dealerships encourage customers to buy extended warranties regardless of whether they need them. But you’re under no obligation to buy right there and then. In fact, you’re better off shopping around to compare third-party (called “after-market”) service contracts with the dealer’s offer. Making a separate transaction, when you’re not also negotiating the price of the car and financing terms, can help you arrive at a cool-headed decision and better understand the warranty terms.
“Car dealers often sell extended warranties at a 100% markup; in other words, they’ll quote you $1,000 for a warranty that only cost them $500,” said Gina Jordan, executive director of consumer lending for USAA. “Buyers can likely get a much better price by shopping around for warranties outside of the dealership.”