Car Buying Tip #9 -- Extended Warranty -- Don't Get One!

This is a follow up to my original article entitled Extended Warranty -- Get One! In this article, I'm going to point out the customers I've found that don't necessarily have to have the protection an extended warranty can offer.

The first set of customers I'd like to identify are those that only buy new vehicles and trade regularly before the factory warranty expires. I don't think I need to spend a lot of time on this, because you are already covered, and to buy an extended warranty, legally referred to as a service contract, would be a waste of money.

The second set of customers I'd like to identify are those that have extreme incomes with a low debt ratio. If, using an extreme example, you have a monthly income of $20,000 with monthly expenses of only $3,000, then you should be able to comfortably afford an unexpected $1,500 repair. On the other hand, I've found people with those types of incomes are usually buying high end vehicles where the average repair might be in the several thousand dollar range.

I'm reminded of my days working for Volkswagen, and the repair costs for one of their Touareg models. I remember a customer that had to have the diesel engine replaced...cost: $18,000 plus. Just to have the brakes changed was close to $1,100...Ouch! Now imagine even higher end vehicles like Mercedes, BMW, Porsche, etc.

The option to purchase an extended warranty will simply be up to you at this point. Keep in mind that both the extended warranty company and the car dealership profit when you purchase an extended warranty, so you'll want to weigh your options carefully. On the other hand, even with a profit for both the extended warranty company and the car dealership, I've seen where extended warranties have more than paid for themselves, on many an occasion.

I know of many well to do customers that "will" purchase the extended warranty, simply because $1,500 to $3,000 for the warranty is a drop in the bucket for them and they simply don't want to deal with the hassle of haggling with the service department over repairs. They just want it fixed and fast!

The last set of customers that I'd like to identify are those that are purchasing very inexpensive vehicles. Extended warranty companies will typically have a clause in the contract that states that the repairs they will make to the vehicle shall not exceed the wholesale value of the vehicle immediately prior to the mechanical breakdown. What this means, is if your vehicle has a wholesale value of $1,500 the extended warranty company will not authorize any, accumulated over the life of the extended warranty, repairs that exceed the value of the vehicle.

The reason this is important to note is that a vehicle that is worth $1,500 wholesale is probably old, with high miles and the extended warranty is probably going to cost more then the max payout you could ever expect to receive.

I hope this car buying tip has helped to shed some light on the sometimes confusing issue of extended warranties.

As mentioned before some people that fall into the categories listed above still opt for the protection, and additional benefits, of the extended warranties. If you'd like to get more information, I've found what I consider to be the most comprehensive coverage available. In fact, this coverage is more comprehensive then the coverage I offer at my car dealership. To get a FREE quote Click Here...