Extended warranties and service contracts are readily available to owners of vehicles. You’ll probably receive solicitations for them when you purchase a vehicle and when your factory warranty is about to expire. The question is: should you buy an extended warranty? The answer is not so simple. It depends on your financial situation and comfort with risk.
What really is an automotive extended warranty or service contract?
An extended warranty or service contract is really an insurance policy. You hope you never have to use it but are glad you have it if something goes wrong. The biggest benefit may be peace of mind that you’re covered, but the odds are against you that you will come out ahead. Companies that sell these products run statistical models, and they are more likely to come out ahead than you. Of course, you might be the lucky one who gets more back than paid in, but the numbers are not in your favor.
Who should buy an extended warranty?
Two types of people should consider these plans. First, if your need to feel protected outweighs your tolerance of risk, an extended warranty might be advisable for you. Second, if a major repair would devastate your financial situation, you might choose to get an extended warranty or service contract. So who shouldn’t buy these plans? People who have a financial cushion to pay for repairs as they arise may want to skip this added protection. Instead of paying monthly for these limited-benefit insurance policies, take the money and set it aside in a savings account.
Know what you’re buying
If you do decide to buy an extended warranty or service contract, you need to be an informed consumer. You really need to read the fine print to know what you’re getting. Many of these plans contain limitations and exclusions that may leave you disappointed when it’s time to collect.
Is there a better way to save on automotive repairs?
Here’s an alternative approach to buying extended warranties and service contracts. Save the money you’d spend on a warranty and put it in a saving account as part of a “rainy day” fund. When a repair does arise, save money by choosing quality aftermarket parts from DB Electrical instead of higher priced OEM parts from a dealership. DB Electrical sells parts like alternators, starters, solenoids, voltage regulators and other electrical components priced substantially less than ones sold by dealers.
Evaluate whether an extended warranty is right for you
While automotive warranties or service contracts might be right for some people, they are not advantageous for everyone. Consider your need for a sense of security and your financial situation. For people comfortable with paying for repair needs because they have the financial ability to do so, tucking money away in a savings account and purchasing value-priced aftermarket auto parts might be the best strategy of all.
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