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Are extended service agreements a good deal?

We’re buying a 2005 Subaru Outback limited, 6 cyclinger, all the bells and whistles. It’s got 28.7 K miles on it; service record shows just routine maintenance, no accidents, etc. The dealer offers an extended service agreement up to 60K for power train for $1875. The car with our trade in is a net cost of around $17K. This will be our third Subaru; the one we’re trading has 137.5K miles on it. Would you get the service agreement?

That’s way too expensive for a powertrain-only warranty. Shop around yourself (online). You are unlikely to have a (covered) repair by 60,000 on this particular car’s powertrain, if I were to recommend any warranty it would be a bumper to bumper (besides wear items) for about the same $2000 price range.

Absolutely not!

There’s no way your '05 Subaru should need an expensive repair before 60K miles. You’re past experience with Subaru should tell you that.

Put the money in the bank instead, and let it earn interest. If you need it, spend it. If not, it’s still yours. If you give the $1,875 to the dealer he puts it in HIS bank. Where would you rather see the money?

Rolling the extended service agreement into the purchase price is an even worse idea. Don’t do that under any circumstances.

Once you own the car find an independent mechanic, preferably one with Subaru experience, and stay away from the dealer. This will save you some money.

These extended service agreements and extended warranties are nothing but additional dealer profit, which is why they push them so aggressively. Save your money.

No. About half of that money goes to the dealer as a sales commission. That leaves less than $950 for the insurer. Deduct about 20% for the insurer’s expenses, and the actual insurance value is about $750. Do you really want to pay all that overhead?

If you insist on having insurance, self-insure your car. Put up to $1875 in a bank account that you can easily access if you need money for repairs during the next 4 to 5 years. You may want to restrict it to power train repairs, since that is the purpose of the policy the dealer wants you to buy. At the end of 5 years, take a nice vacation with the principal and interest you have left. Odds are it will be most if not all that you invested.

I am not susprised as to the warranty question response but I can add, I have done thousands of dollars of work on peoples cars paid for by extended warranty and unlike normal warranty a tech can upsale extended warranty,what I mean is you can ask me to look your car over for any problems and I can report,I am not forced to only look in the area of your complaint (as I am with manufactures warranty)

Now it is up to you to make sure what the extended warranty covers,espically internal engine and transmission diagnostic time and electrical diagnostic time,make sure your warranty covers parts that wear out,not only parts that break and make sure you understand fully the policy regarding a rental car while yours is being repaired,it is very important you understand the “pitfalls” of any policy you buy.

Last I would say don’t buy your policy from the selling dealer.

Well any car can have major expensive repairs.

The profit to the salesman and company is usually over 50%. So for every $1,000 you spend the insurance company has less than $500 to pay for repairs or they will loose money, something insurance companies do not do. Some people will get nothing back and some will get a lot more than they pay.  Most will get far less. In addition you need to keep in mind that the insurer has worded it to eliminate as many expensive things as they can.

Remember that the seller is out to make money and they get to write the rules and set the price.  They are not going to sell them at a loss so one way or another they are going to have you pay more than they will pay out.  

Would you gamble with a car dealer who gets to set all the rules and knows all the odds?   

Your decision has to do with the value of the piece of mind it gives you. If that is worth the cost then buy it. Don't expect it to cover everything however, most are written to keep cost down and exempt what they know will cost them money. 

Good Luck

This is a GREAT deal for the person selling the policy…Put the $1875 in the BANK in case you need it. If you never need it, take a nice vacation with that money…

tell them that if the vehicle needs that warranty, that you don’t want the vehicle, then leave.