Third party automobile warranty companies have stepped up their advertising campaigns and my inbox has been flooded with inquiries from readers asking if these programs are worth the cost.
Don’t walk away from offers of extended automobile warranties, RUN!
Mogi, Stop Repair Bills, US Fidelis, Warranty Direct, the list goes on. Every week it seems there is a new warranty company offering to “magically” make all of our vehicle’s repair costs go away!
The reality is these companies are in business to make money (its a shocker, I know!) and the only way they are going to make money is if they charge more for their warranties than they pay out in claims.
In other words, you are statistically going to pay more for an extended warranty service contract than you would receive in the form of covered auto repair bills.
The Sales Pitch:
Third Party Automobile Warranties are advertised as “the same as” or “better” than traditional manufacturers’ bumper to bumper warranties. Having bought several new vehicles over the last 1o years, I can assure you nothing is better than an original manufacturer’s warranty on a vehicle purchased from a reputable dealer.
The reason is quite simple, dealers typically do not cover the cost of the vehicle repair themselves. Instead, the work is invoiced directly back to the automobile manufacturer’s warranty department for payment or credit.
Most (if not all) third party auto warranty companies have very specific restrictions on what vehicle components are covered and what components are not covered.
While the pushy sales representatives will lead you to believe that virtually every major component of your car will be covered by the extended warranty, the reality is warranty companies have extensive databases of which automotive parts are likely to fail and which parts are not and base their “covered repairs” on this information.
Even worse, there is always the possibility that the extended warranty company goes bankrupt rendering your contract useless.
How Much Do Third Party Extended Automobile Warranties Cost:
Extended warranties vary in cost based on the make, model, year, and mileage of your vehicle. You can expect to pay $2700-$3500 on an “average mileage” three year old vehicle with an original MSRP of $30,000.
My Recommendation:
If you are considering the purchase of an extended warranty for your automobile to supplement your vehicles current warranty, I wouldn’t do it!
Instead, deposit the money in your savings account as part of your emergency fund and use it to directly pay any future automobile repair bills. On average, you will come out ahead down the road!
