Is an extended car warranty worth the expense?
September 6, 2005 9:09 AM   Subscribe

i need advice on purchasing an extended car warranty for a new vehicle.

we finally replaced my wife's classic (read gas guzzling) vehicle by purchasing a new 2005 chrysler pt cruiser. this car comes with a 3 year/36000 bumper-to-bumper and 7/70 powertrain warranty. the dealer is offering to extend the bumper-to-bumper warranty to 7/70 as well, for a little bit shy of 900 dollars. i can save about 250 dollars by using a third party warranty company for (substantially) the same coverage.

our plan is to keep the car for the duration of the powertrain warranty. we have never owned a new car, and i'm not sure how to get started making a decision about whether the extra warranty is even needed, and if so, which option would be preferable.
posted by lescour to Travel & Transportation (16 answers total)
Warrantees are, by and large, a scam. They are pure profit for the dealer, which is why they push them so hard. If your car is a lemon, you'll know it well before 3/36 and most new cars will go a 100K before they have severe trouble. I'd look for long term reports on the web and see what trouble people are having with them. There's a boatload of PT's out there, so I'm sure there are some user sites.
posted by doctor_negative at 9:22 AM on September 6, 2005

Well...I don't have any websites to back this up, but I do know someone at Chrysler. He suggested to me that the dealership warranty was favourable over the third party because you only have to one point of contact. I mean, some thrid party warranties can be a real nuisance in that you have to get quotes, fax things in, etc. If you extend the dealership warranty, then, you just keep taking it back to them. Much simpler I think.

Of course, YMMV.
posted by Richat at 9:47 AM on September 6, 2005

It is worth it if you want piece of mind. Otherwise (i.e. financially) it is throwing money away.

Most repairs that you will have to do for the first 5 years or so of the life of a new car are going to fall under the "routine maintenance" category (tires, brakes, etc) and won't be covered by any warranty. On the other end of the scale, any serious problem with a major component (such as a warped head or a blown transmission) will be covered by the powertrain warrranty. So the extended warranty is most likely just going to be wasted money. I'm not saying that you won't need it, because it's always a game of probability -- but on the whole you're better off without.

If it was not such a huge profit-maker for the dealer why would he push it on you?

Another way of looking at it: Take that $650 and park it into a savings account. Even at a modest 6% interest rate after 7 years you'll have close to $1000. So if you buy this warranty, not only are you losing the $650 that you spend today, you are losing another $350 over the lifetime of the warranty that your money would have otherwise earned you. If by chance you do need some major work done on the car, then you can just withdraw the money and use it.

The ONLY way that you come out ahead by buying the warranty is IF something breaks that's NOT already covered by the powertrain warranty AND it would have been covered by the extended warranty (note the fine print about "routine maintenance" items) AND it costs more than the $650 PLUS whatever interest you would have earned by that point. In other words, it's a scam.
posted by Rhomboid at 9:49 AM on September 6, 2005 [1 favorite]

When I purchased my last vehicle, I decided not to buy the warrantee, but then, the dealer made a deal with me: if I didn't use the warrantee within the warrantee period, they'd give me my money back. And yes, I got it in writing.

So, they have the use of my money for now, but I have piece of mind, and if I'm lucky, I'll get my money back.
posted by cptnrandy at 9:53 AM on September 6, 2005

The warranty is an insurance policy. And just like any insurance policy, it is priced so that the underwriter makes money. So, on average, it will not be worth it to you. I bought the extended warranty on my 95 Ford Escort. I used it twice, I think, but the total cost of those repairs was less than I paid for the warranty. The warranty ran out years ago and the car is still running fine with 111k miles on it. When we replaced the Escort as our primary family vehicle with an 03 Taurus, we also bought the warranty. So far it has it has been flawless, but the basic warranty expired a long time ago since the car has 60,000 miles already. It's nice knowing we're covered if there are any problems with the car.

If it is your primary vehicle (as the Escort and the Taurus were for us), the warranty gives you peace of mind. If you have several vehicles, this is probably not worth it.

I am buying a new car soon myself. I expect to buy either a Hyundai or a Kia. While the warranty is not the driving factor, both cars have 5 year/60,000 mile bumper-to-bumper and 10 year/100,000 mile drivetrain warranties. I won't be buying the extended warranty this time around, since the basic warranty is so good and we will have an extra car around (the Escort, which will be driven by my sons).

The more important thing, though, is to make sure the car has the maintenance done. This is the best way to ensure the car will not have problems down the road, and is also necessary to keep your warranty intact.
posted by Doohickie at 10:00 AM on September 6, 2005

When I bought my first car, I got the extended warranty and they refunded that amount when I traded it in. I have the same deal on the vehicle I'm getting ready to trade in. YMMV.
posted by moosedogtoo at 10:02 AM on September 6, 2005

So, it appears that ultimately, you are buying insurance. If nothing ever goes wrong in your house, you have wasted ALL that money spent on house insurance. If you never die, life insurance is USELESS.

As Rhomboid pointed out in his first sentence, it will give you piece of mind, yeah, and at a price, of course. I like the piece of mind rather than hoping that the vehicle I bought isn't one of the lemons. If you have a car with ongoing issues, you will be glad of the warranty. Unlike many purchases, you can't return a car, so in my mind, the extra dough is definitely worth it.

And, if you are inclined to buy some insurance/warranty, I repeat my earlier point - I think the a dealership warranty is a better thing than a third party. You are spending money here to cut down on hassle, why not simplify even more?
posted by Richat at 10:05 AM on September 6, 2005

just for record, I wrote that second post before doohickie's!
posted by Richat at 10:06 AM on September 6, 2005

Even at a modest 6% interest rate after 7 years you'll have close to $1000.

If you can find a 6% savings account somewhere, let me know where!
posted by kindall at 10:39 AM on September 6, 2005

A couple of things to consider:

* If you buy a third-party warranty, and the company goes bankrupt (or starts denying most legitimate claims, which is roughly the same thing), then your purchase is worthless.

* Most extended warranties have large numbers of exceptions - make sure you're doing an apples-to-apples comparison. (Regardless of the seller, it's quite unlikely that the warranty for years 4 through 7, even if "bumper-to-bumper", really will cover everything covered by the warranty for years 1 through 3.)

* If the warranty isn't transferrable, or if you trade in the vehicle before the extended warranty kicks in (it's not clear that car dealers give any value to these, when you do a trade-in), then you're betting that you'll keep the car for more than three years.

* Having recently purchased a new car, I noted that the manufacturer (Toyota) allows the purchase of an extended warranty any time up to the point where the warranty expires. If Chrysler has the same approach, then there seem few disadvantages to waiting a bit.
posted by WestCoaster at 11:18 AM on September 6, 2005

Many people don't realize that (usually) dealer extended warranties are negotiable, and even if you get a Chrysler warranty (rather than a third-party warranty), you can shop around from dealer to dealer.

(May not be true for Chrysler, but is true for many/most makes)
posted by Kwantsar at 11:27 AM on September 6, 2005

> So, it appears that ultimately, you are buying insurance. If
> nothing ever goes wrong in your house, you have wasted
> ALL that money spent on house insurance. If you never die,
> life insurance is USELESS.

You're missing a crutial bit of understanding with how insurance works. If you can reasonably afford to replace the thing being insured, then insurance is a bad idea.

It's only a good deal when the thing being insured cannot be easily replaced. So, losing your $200,000 house to a natural disaster is not something most people can financially stand so they buy insurance. Having a working parent die and leave the family with tons of bills is not something that most people can budget for, so you buy insurance.

However, fixing a $500 engine repair *IS* something that most people can afford -- even if they may have to put it on a credit card or something. Having to pay a mechanic for an expensive repair and losing your house are just in two completely seperate ballparks in terms of what most people can financially cope with.
posted by Rhomboid at 11:32 AM on September 6, 2005

Rhomboid, you are completely right of course, I had meant to mention that salient point in my smart aleck summation, but forgot to. It is true that a house or the income of a parent is much, much more difficult to replace. I was just trying to point out that there are a lot of rackets out there, and really, you just need to decide what gambles you want to take. Again, for me, 600 bucks was worth it to extend my warranty. I hate surprises.
posted by Richat at 11:37 AM on September 6, 2005

Yeah, I bought the extended warranty on my last car too for peace of mind. Even if I sell before that warranty expires, it should help resale value, since the extended warranty is transferrable for a modest fee while the original factory warranty is not. Also, if I need warranty service, I will receive a loaner car if I have the extended warranty, but if I didn't, I would have had to pay for my own rental while the car was at the dealer. (The exact perks will vary from make to make, of course.)

If you are worried about the cost of the warranty, simply pay the car off a bit faster than you usually would (e.g. add an extra $25 or so to each payment) and you'll get most of it back in interest savings.
posted by kindall at 12:23 PM on September 6, 2005

I'm normally against purchasing warranties but $900 for 4 years is pretty cheap. If that's labor as well as parts I'd personally be inclined to take the gamble and go for it, and I say that as a man who (a) owns a car that's old enough to vote and (b) does repairs up to and including replacing radiators and brake master cylinders himself.

The hourly charge in a dealership shop is around $80 and it's a rare job that is billed at only an hour. Additionally, years 4-7 are the ones where you'll start hitting the wall on some parts. The big criteria here is what's going to be filed under standard wear and tear and what'll be covered. At 12,000 miles a year you're at timing belt replacement time in year 5. That's pricey and a maintenance item so no way this is gonna cover it. But at the same time you're doing that the various belts will likely be showing wear and need replacing.

This is where this could be a little profitable. Are they going to repair those belts for free along the way because of this warr? How about the water pump? All the seals that come off on the way into the timing belt and are required to be replaced rather than re-used?

You'll have to decide for yourself if it's worth it. Odds are in your favor that if you put that $900 in an index fund and use it to pay for repairs in years 4+ you'd be better off. However you probably won't save it that way and it's possible you could end up spending a lot more than that $900 if you're unlucky. Will you mind if you lose the dice-toss even though you know it was the more financially prudent choice?
posted by phearlez at 1:18 PM on September 6, 2005

The big criteria here is what's going to be filed under standard wear and tear and what'll be covered.

This needs to be stressed, so I'm repeating it.

The sorts of things that might "go" from year 4-7 are:
  • Timing Belt
  • Shocks
  • Spark plug wires
  • Water pump
  • Coolant hoses
  • Radiator
  • Engine seals
  • Gaskets
  • PCV/EGR valves
  • Exhaust (muffler, catalytic converter)
The sorts of stuff that you'll have to replace on your own dime, regardless of warranty (these things are almost always never covered):
  • Spark plugs
  • Fluids (oil, tranny, coolant, wipers, gas, etc.)
  • Filters (air, fuel, oil)
So. If the extended warranty covers those items in the first list, fabulous. You'll be saving oodles of dough in the long run. "Powertrain" can mean a lot, though. Engines that are properly maintained will last for years and years and years. Same with transmissions (if they're automatic).

If you regularly drive despite audible buzzing warning sounds or flashing "Check Engine" lights, a powertrain warranty will do you good. But just about the only reason you'll ever damage your PT's "powertrain" is if you run it out of oil or put a water hose into the engine block while it's running. If they'll put the stuff on the top list in writing, go for it. If it's just a "we'll fix your engine/tranny if it dies," fuggetaboutit.
posted by Civil_Disobedient at 9:35 AM on September 7, 2005 [1 favorite]

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