This is part of a seven-post series discussing our journey to buy a new car. Scroll to the bottom of this post to explore the entire series. The series took a brief break while I wrapped up my transaction with Hertz, but I’m ready to wrap up the series this week with a Rent2Buy review. But first, let’s look at warranties.
When it comes to extended car warranties, it seems like people fall into three groups (remember buying rental cars?):
- Those who never want to worry about another repair again and are willing to pay for the privilege, every time;
- Those who are willing to consider warranties on a case-by-case basis, shop around, and run cost-value analysis to figure out if it makes sense;
- And those who believe that warranties are a ripoff 100% of the time and want no part of the game.
Where do you fall?
A Bit Like Health Insurance
Buying an extended car warranty is a bit like buying health insurance (more on that topic in the coming weeks).
There’s a coverage period (3 years, 6 years, etc.) during which repairs (i.e. “sicknesses”) are covered based on the level of coverage (how good of a plan you purchased). The basic plans cover major repairs, while the more expensive plans cover almost everything that could go wrong. In most cases, there’s also a small deductible for each repair ($50, $100, etc.).
The plans can be “managed care,” where repair shops are specified by the warranty issuer, or more like a PPO or HSA approach, where any shop is fair game. In most cases though, you have to call the warranty provider ahead of time (like pre-certification for surgery) to get approval for the repair.
Finally, shops are either paid directly, or you are reimbursed for the repair after it’s complete.
Are They Worth It?
If you’re wondering, I’m in group #2. I think warranties are never “good” or “bad” deals, but should be looked at in the overall scheme of things, considering:
- the car you purchased (mainly reliability and previous use),
- your monthly car budget,
- your available savings if something were to break,
- how much you rely on the vehicle being covered,
- how long you plan to keep the car,
- and obviously–the features and price of the warranty being purchased.
Yes, warranty issuers do make money. Is that really a surprise? It’s very likely that the average person will never recover the full value of their premiums.
But if you analyze your personal situation and elect to treat this as another form of insurance you own, it might make sense. After all, a single A/C failure, transmission crash, engine blowup, etc. can easily run over the policy’s premium value in a single repair.
What Do You Think?
I have a couple of other points to make, but I have no doubt that I’ll get them into the discussion below. This should make for an interesting topic!
Please share your experiences with car warranties, your thoughts on buying and using them, and anything else you might want to say!
This is part of a seven-post series on our new car journey. Below are links to posts that have already been published as part of this series:
- Our One-Car Experiment and Car Decision
- How to Sell Your Car on Craigslist
- Using Consumer Reports to Select a Car
- Would You Buy a Rental Car?
- Should You Buy a New or Used Car?
- This Post
- Review of Hertz Rent2Buy
Photo by Axel-D