When Extended Warranties Pay Off

July 12th, 2013
2007 GMC Acadia

An extended warranty might be a good idea

About 4 years ago a family member bought a used Lexus, along with an extended warranty contract that covered the car for 5 years and an additional 60,000 miles.

The contract cost about $1,200 and was quickly forgotten once the paperwork was completed.

Meanwhile, my brother purchased a 2007 GMC Acadia, and an extended warranty. Before the ink even dried, his transmission failed, and the warranty more than paid for itself by covering the repairs. Other issues on the Acadia have come up since, and the warranty covered them all.

With my brother’s warranty set to expire, he’s preparing to sell the car rather than risk more repairs.

The Lexus has been flawless for many years, until this month, when it began running hot and experiencing other problems. The car was in the dealer’s shop before the warranty was remembered. With just a few thousand miles left on its coverage, it paid for a new radiator.

There’s lots of advice out there that says to skip extended warranties, but experience says they’re worth it—when done right.

My advice on the topic of extended warranties is simple: When buying new, skip it, along with saying no to the undercoating, fabric protectant, paint protectant and other extras. When buying used, budget for the extended warranty, but purchase it through a credit union, if possible, because the price will be lower than buying through a dealer. However, avoid rolling the cost into the loan, because you’ll pay interest and quickly escalate the warranty’s cost. Pay cash if you can.

In all likelihood you won’t ever need the warranty. Even with the Lexus, the repair costs made the warranty cost a wash. However, with the warranty long paid for, the free radiator repair was a blessing at a time when cash was short.

In my brother’s case, the thousand-dollar warranty saved about $10,000 in major repairs. So, when buying a car with an expired, or soon to expire, manufacturer’s warranty, the extended warranty could be a wise decision!

Buying an extended warranty for your car: Yes or no?

-tgriffith

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Used GMC Acadia

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