Buying a new car is an exciting experience. You get the latest features, improved safety, and that new car smell. However, along with the excitement comes the question of long-term financial protection, especially when it comes to potential repairs. This is where the idea of an extended car warranty comes in. Financial experts like Dave Ramsey often advise against them, stating, “I don’t recommend buying extended warranties, ever.” But is this always the right advice for new car owners? Let’s delve into whether an extended car warranty is a smart move or just an added expense for your brand-new vehicle.
The truth is, dealerships and third-party companies heavily promote extended warranties, also known as vehicle service contracts, because they are highly profitable. The commissions on these warranties can be substantial, making them a lucrative add-on at the point of sale. This profitability is a key reason why they are so actively pushed to new car owners.
For many, especially those who prioritize financial prudence, the advice to skip the extended warranty and instead build an emergency repair fund is sound. The logic is that new cars are generally reliable, especially in their early years, and the money spent on a warranty could be better saved for potential repairs down the line, not just for the current car but also towards your next vehicle purchase. If your new car is from a brand known for its reliability, the chances of needing major repairs within the extended warranty period are statistically lower.
However, dismissing extended warranties outright might not be the best approach for every new car owner. If you’ve chosen a model from a brand with a less-than-stellar reliability record, the peace of mind an extended warranty offers can be valuable. It can act as a financial safety net against unexpected and potentially costly mechanical breakdowns beyond the original manufacturer’s warranty. For those who are risk-averse or prefer predictable monthly expenses, an extended warranty can reduce financial stress related to car repairs.
If you’re considering purchasing an extended car warranty for your new car, the optimal time is generally while your vehicle is still covered by the original factory warranty. Purchasing coverage at this stage can often result in lower prices and a wider range of coverage options and longer terms. Remember that the price of an extended warranty is negotiable, just like the price of the car itself. Don’t hesitate to shop around and compare offers from dealerships, auto clubs like AAA, and insurance companies (who sometimes offer mechanical breakdown insurance).
Crucially, understand the fine print. Extended warranties, particularly aftermarket ones, often have specific limitations. These can include what repairs are covered, where you can get your car serviced, and deductibles. Always ensure you are purchasing from a reputable provider with a proven history, ideally directly from the automaker.
Ultimately, the savviest approach is to research and choose a new car model with high predicted reliability ratings. Consumer Reports, for example, provides valuable car reliability ratings to help inform your buying decision. Properly maintaining your vehicle according to the manufacturer’s recommendations is also vital to minimize repair needs. And be highly skeptical of unsolicited robocalls offering extended car warranties; these are often scams.
In conclusion, while extended car warranties can offer peace of mind, especially for new car owners concerned about potential repair costs, they are not universally necessary. For many, focusing on buying a reliable vehicle, maintaining it well, and building a repair fund is the more financially sound strategy. However, for some new car owners, particularly those choosing less reliable brands or who value budget predictability, a carefully considered and negotiated extended warranty purchased from a reputable source might be a worthwhile investment.
