Extended warranty offers - good or bad deals?


#1

My mother owns a 2004 Scion with roughly 30k miles (she purchased used in 2006). Her dealer purchase warranty will expire soon and she recently received an offer from Scion for “extended vehicle coverage.” She is in her mid-70s and her driving is minimal at this point. Are these warranties generally good or bad deals, or does it just vary widely?


#2

Part of the attraction to Toyota is that they are a very reliable brand. The odds of breaking even on an extended warranty purchase is very low, for this brand and model. Unless she has had an extraordinarily bad time to date (and even then a cost-potential benefit analysis of some type needs to be done), she should ignore the sales pitches. In general, saving the policy cost in a savings account will serve her better.


#3

These so-called extended warranties are actually insurance policies. They are generally written in such a way as to make it difficult for anyone to collect. Few buyers ever recover their premiums. Even consumers’ groups advise against them. Your mother would be best served by declining such offers.


#4

Search previous blogs we talked about this alot last week.


#5
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 peop;le 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


#6

Don’t waste her money and her mechanics time. These extended warranties especially if not supplied by manufacturer are difficult to collect on. Your mechanic has to get work approved and they draw out process and waste their time. For example my brothers Saab with a warranty purchased from AAA had a recent covered repair. The mechanic had to waste 1 hour on phone overall trying to get it approved before performing work.


#7

Yes there is the requirement to get a approval for a repair (I have some people want repairs done on expired policies some facts need to get verified) But this type of work is not for the mechanic. The mechanic makes the diag. some shops require the mechanics to get part prices,then the Service Advisor takes over(taking your car to a one man does all shop is your personal decision)


#8

Personally, I never buy extended warrantees. You are better off putting some “emergency money” aside to cover car repairs than having to hope whatever goes wrong will be covered by one off these plans.


#9

She’s far better off to put the money that the warranty would cost in a “rainy day fund” and keep it herself.


#10

Yes, rainy day or repair fund of your own is just as good. I proved this to myself being able to afford to part with the money in the first place…sock it away on my own. It was insurance for the band equipment I hauled all over the four courners for country-rock gigs over the past thirty years. Had I bought insurance on it I would have wasted enough mony to have bought new amps and guitars eight times over !


#11

I normally don’t recommend extended warranties but every once in awhile they do prove valuable: 1) My oldest daughter bought a used Toyota Sequoia 2 years ago and also purchased an extended warranty - within a month her AC failed and dealer ended up replacing nearly the entire system (and daugher apparently saved nearly $3000, according to shop manager). 2) My youngest son has extended warranty on his Dell laptop (2 years old). Something failed and he received a new laptop. As with any “insurance”, most never use it and some benefit mightily.


#12

She probably does not need one; most people don’t. The seller makes money on the difference between what they take in and what they pay out. And about half of the extended warranty goes to the agent and the balance to the insurance company.


#13

People feel they save “$3000” but when you realize you paid $1700 for the warranty you really only saved only $1300 on something that rarely happens.


#14

It depends on the individual - some people like the idea of having the “insurance,” and probably very few would actually take the money they don’t pay out on extended coverage and save it for future repairs. My personal experience with a GM car on which I did not have extended coverage: from 36K (warranty expiration) to 100K mileage I easily paid in excess of $1100 for repairs (not maintenance). When I purchased a new GM vehicle, I also purchased the GM bumper-to-bumper warranty to 100K, and the price was $960.00 - with a $100 deductible. I may end up not having any major repairs on the new vehicle between the 36K standard warranty and 100K, but I felt safer purchasing the warranty - based on my past experience. It is an individual decision. Keep in mind too, that not all warranties (and warranty companies) are created equal. As for your Mom, if she has had no problems with her car to date, I wouldn’t buy additional coverage at this point. It’s probably expensive.


#15

I might add that if you finance the car and add the warranty price into the vehicle cost - you’d also be paying interest on that amount. So the cost is somewhat inflated - depending on the amount, interest rate and loan term.


#16

i got one for a chevy that i bought.im glad i did it paid for itself 10x over.it depends on the car.but it is just another sales pitch.my mechanic replaced any thing that was under warranty he made a commision also.and instead of fixing a part they would replace it. would not do it again. just another sales pitch. save your money.did yoy have a mechanic check the car out before you bought it?.or a car fax?


#17

So if you paid $1100 for repairs out of pocket you still are ahead of buying a $960 warranty +$100 incident. If you had multiple incidents $100/each adds up beyond the initial cost. I think people who like these policies forget about the initial money spent.


#18

As others noted, it is an insurance policy. Different types of insurance vary, but the general rule of thumb for insurance is that they pay out $0.50 for every dollar in premiums that they take in. Extended warrantees pay out much less than 50% because the insurance company only sees half of what you pay the dealer.

The only person I ever knew who came out ahead on on an extended warrantee had a Jeep Grand Cherokee that was in the dealership for major repairs about once a month for all the time he owned it. He got many times the value of his extended warantee.

Question: How much is the “peace of mind” worth to you. That is a factor.

If you want it, shop around. Do NOT let the dealer who sells you the car add it on along with the overpriced undercoating and floor mats. You may find that your auto insurance carrier will give you the best deal on an extended warrantee, and you know where to find them when you have a claim.