Does Auto Warranty Really Save You Money?
When considering an extended warranty on your car loan, it’s important to weigh the pros and cons and decide if you are willing to spend the money up front and may not see a return until soon. years. What is peace of mind worth to you?
Skip now, save later?
Yes, an auto warranty can save you money on repairs for the life of your vehicle, but only if you need to use it. Often times, collateral gives the borrower a sense of security, knowing that some things can be covered at no upfront cost if they go down. However, warranties can vary a lot and many of them don’t cover everything.
Another key factor to consider when purchasing an auto warranty is the condition, age, and condition of the car you wish to purchase. If you are financing a new vehicle, it usually comes with a warranty guaranteed by the manufacturer. It may make more sense to purchase a third-party warranty extension if you buy a used careven if you don’t need the blanket right away.
There are pros and cons to obtaining a whole vehicle warranty, and arguments can be made for when you purchase your extended warranty is also important.
New car warranty vs extended service contracts
Auto warranties aren’t a blank check when it comes to covering anything that could go wrong with your vehicle, so knowing what’s included in your coverage is very important.
New car warranties are usually included with every purchase of a new vehicle, courtesy of the automaker. These typically cover at least three years or 36,000 miles, whichever comes first, but manufacturer warranties can vary widely. For example, Chevrolet offers a 60,000 powertrain warranty on all new vehicles, but not a bumper-to-bumper warranty. So if your transmission breaks down or you have an engine problem, you’ve got you covered. However, if something else unexpectedly breaks – like a hood latch or a console button – you’re on your own for the repairs.
Extended warranties, or used car service contracts, can have much more variation in their coverage than manufacturer warranties because they are offered by third parties. These are usually offered to you at the dealership when you finalize your contract, along with other dealership add-ons and finishing options. Depending on the car you’re financing and if some of its original warranty remains, this might be a great time to take advantage of that peace of mind. However, if you are confident in the condition of the vehicle and have had it inspected by a certified mechanic, you may choose to wait and purchase warranty later.
Timing is important in warranty purchases
You can actually save a little (or a lot!) Of money if you wait to buy an extended warranty for a used vehicle. It might seem like an easy choice, or it might be something you don’t want to have to remember to do later, but adding a service contract to your car loan right away could mean paying more interest.
When you accept dealer add-ons, like an extended warranty as part of your auto finance contract, these charges are usually built into your loan so you don’t have to have separate payments. However, adding these extras increases the amount you fund unless you pay it right away. The more money you borrow, the more interest there is and the more you pay overall.
By skipping the extras up front, and addition of an extended warranty when it becomes more likely that you need repairs, you don’t pay unnecessary interest charges. This can be especially helpful if you have bad credit. Bad credit borrowers tend to qualify for higher interest rates which cost you more when you borrow.
Advantages and disadvantages of vehicle warranties
Whether it saves you money now or later, it’s worth considering the pros and cons of an auto warranty. Remember that a new car comes with a cover just like most Certified Pre-Owned Vehicles (CPO), but it is usually up to you whether or not to purchase an extended service contract for a used car.
Possible benefits include:
- Peace of mind
- Possible money savings on repairs and interest charges
- A warranty could increase the resale value since the policy usually goes with the car, not the driver
Possible drawbacks include:
- You may never need the coverage you paid for
- Coverage varies a lot – read your policy exclusions very carefully
- You may not be able to use your coverage until a certain date or be limited to specific dealers or mechanics for services.
Other warranty factors to consider
For an auto warranty to really save you money in the long run, it will depend on the type of warranty coverage you have and the type of repairs you need to cover. Buying an expensive warranty policy from the dealership may not be worth it if the only thing you’re using it for is a small, inexpensive solution. However, if you need an expensive repair – a new engine, fuel pump, or transmission, maybe – you could save a ton of money overall.
Several other factors can affect the fact that a warranty can save you money:
- The type of vehicle you are financing – When driving a domestic vehicle, an older used model, or a vehicle known for its value, a warranty is likely to come in handy with the standard powertrain coverage. Bumper-to-bumper coverage also helps, but may not cover some components of all vehicles. If you drive an expensive luxury car, an extended service contract may not contain enough coverage to be worth it.
- The condition of your car – If you are driving a vehicle that is in fairly decent mechanical form and does not appear to collapse due to age, it may not make sense to pay for a warranty that you are not going to use. But if you have a car that has seen some wear and tear over the years, or is getting old (about five years or more), you can save more money by having a warranty.
- What the warranty covers – Again, coverage can vary a lot when it comes to extended warranties. Before you agree to take one, you need to be sure you know what is covered. The powertrain and bumper to bumper are the most common forms of coverage, but they may not include coverage for electrical or computer issues, which can be detrimental given the more advanced vehicle features. technologically today.
- Franchise – Warranties act as additional insurance coverage, and therefore in many cases you have to pay a deductible just as you would for using your auto insurance policy. If you have a high deductible or have to pay out of pocket to get reimbursed through your guarantee plan, the cost may not be worth the savings or the peace of mind.
Ready to consider coverage on your next car?
If you think an auto warranty is the right solution for your next vehicle, remember that you can buy it anytime on a used car. New and CPO cars come standard with coverage at no additional cost to you (although these vehicles tend to be more expensive).
When you need a car and bad credit gets in the way of your next car loan, we want to help. Here has Express auto loan, we’ve built a nationwide network of special financial dealerships that can help consumers with bad credit, no credit, and even bankruptcy. So if you’re ready to buy your next vehicle without having to search all over town, start here.
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