Is a Used Car Warranty a Waste of Your Money?

By on April 16, 2014

Things to Consider Before Buying a New Service Contract

Now that you have a better idea of what exactly is on the table, there are some serious considerations to take into account when weighing your service contract options.

Before saying “yea” or “nay,” there are four elements you’ll want to think about.

Let’s break it down point by point:

  • The Car – Is the used car you’re thinking about buying in great condition with low mileage? Is it a bit rundown with a long life already behind it? An extended warranty or service contract doesn’t seem too necessary for the former, while it may save you money on the latter. The condition of the vehicle is one of the most important considerations in purchasing additional coverage.
  • Your Future – Are you buying this used car as a placeholder until you can buy the car you really want next year? If so, don’t waste money on extended coverage. Placeholders shouldn’t drain your financial resources–save it for your dream car!
  • Cost Analysis – Say your service contract plan is going to cost you $1,500 for 100,000 miles. Can you be reasonably certain this car will require more than $1,500 of work before you reach six digits on the odometer? If so, then buying the contract makes sense. If not, then buying that coverage requires a bit more thought.
  • Other Benefits – A lot of times, an extended service contract on a used car will come with miscellaneous perks. One of those can be that the dealer will give you a loaner vehicle if yours is in the shop. Another may be the benefit of free roadside assistance (flat tire repair, towing, etc.).

Dealerships–and salespeople in particular–will be keen to get you to buy their service contract, because it means a bigger commission.

This means they won’t mind at all if you don’t ask specific questions about its benefits or take the time to truly consider the purchase. Unless they’re feeling especially magnanimous, they’ll want you to agree as quickly as possible (usually while saying “let’s get you off the lot and on the road today!”).

Now I know not all dealerships and salespeople are like this, but a good many are. So it’s up to you to slow them down and ask not only the right questions, but all the questions. The more you understand about what you’re buying (or declining), the better the chances are that you’ll make the right choice.

Buying a Used Car Warranty: The Final Verdict

All right, I’m going to give you the ugly truth right now: there is no right answer to the question of whether or not you ought to buy the used car service contract. Either way, you’re taking a gamble.

But unlike a Craps-shooter at a Vegas casino, your gamble will be slightly less of a risk. And that’s because you’ll be able to get an informative reading on a number of different factors that will affect whether or not you’re gamble is the right one.

These factors, that we talked about above, include:

  • Current car mileage vs. original warranty coverage
  • Condition of car
  • Estimated repair costs over the next few years (or thousands of miles)
  • Short-term placeholder vs. long-term vehicle
  • Number of perks included with service contract

Just as you would make a “Pros” and “Cons” list for any big life decision, it’s important to weigh the positives and negatives of purchasing a service contract.

In the end, you’ll either need the coverage or you won’t, and there’s no way to 100% accurately foresee that eventuality. But at least you can make an educated guess.

It may be a toss of the dice, but if you put in the work and do the research, you can be fairly certain if you’re throwing sevens or snake eyes.

What are your experiences with extended warranties and service contracts? Any horror stories out there? Or maybe you had some really good fortune from getting one? Tell us all about it in the comments below!

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