Extended warranties get a bad rap. There’s no shortage of pundits who will tell you that extended warranties are a waste of money and you are far better off putting the money in the bank. Are they right? Well, it might be for some products (computers and accessories?), however with a car, you might want to think twice. Bottom line: it all depends on the level of risk that you are willing to live with. Here’s what to know.

Car repair is expensive today

Here’s a sobering fact: The AAA says the average American household spends $3,258 on car maintenance per year. That seems seem possible does it? That’s a lot of money for the average household, especially if they have 2 or more cars.  Why is this? Well. the cars today aren’t the simple machines they used to be. New vehicles are loaded with complex technology, and lots and lots of electronics. Because of this, not only have cost of repairs skyrocketed, so has the cost of just diagnosing car problems. According to www.performancedodge.com, the average cost to repair, for example, an air conditioning system is some $1000 to $1200 these days. That’s not end of the world, you may think, but consider that over the next five years repair costs are going to increase about 12% per year. That $1200 air conditioner repair today could cost as much as $2000 to repair just a few years from now. Now we are talking about some serious money.

Warranties buy you “peace of mind”

So let’s look at these extended warranties again. Many people think that they are just a mechanism for car dealers to make more money. Yes, car dealers do make a profit from selling extended warranties (just as any insurance sales person does,) but rather than thinking of them as dealer profit centers, think about what they really are: they are insurance. Essentially, an extended warranty buys you peace of mind knowing that no matter what comes up, your local repair center may repair it for absolutely free. For many people, this is a nice feeling. 

How they work

Extended warranties are usually packaged in a way similar to your original factory warranty. You can purchase a set number of miles or a set number of years, for example: 30,000 miles or 3 years. Typically, you are provided with a list of local repair shops that you can go to, but with extended warranties from a major car brand, you usually have to go to one of their authorized repair centers.

Should you buy one?

Here’s the bottom line: you don’t need an extended warranty, nobody has to have one, but does it buy you peace of mind?  If it does, then it’s worth what you pay for it. Being able to sleep at night is a nice feeling knowing you are protected.