When you purchase a new vehicle one option that you have is whether or not to add an extended warranty to your loan. Extended warranties or “extended service contracts” are optional insurance products that protect you from mechanical breakdown expenses in the future after your factory warranty runs out. Here are some things to consider before you make a decision.
1) How Many Miles Per Year You Drive- If you are a low mileage driver you may not need to purchase extra coverage because you will not exceed the factory warranty mileage cut off. If however you are a high mileage driver it may be worth it to purchase a vehicle service contract because you know going in that you will exceed the factory warranty mileage. Higher mileage drivers tend to fair better with vehicle service contracts.
2) How Long Do You Keep Your Vehicles- Some people trade every 3 years, if this is the case with you then it really doesn’t make a lot of sense for you to purchase extra coverage that you will never use. If the factory warranty goes for 3 years and you trade every 3 years there really is no reason to purchase it. For people who keep their vehicles for a long time the odds of a mechanical failure are more likely and it may make sense to purchase the coverage for a longer term.
It is important to note that the above are general examples and assume the vehicle is brand new with zero miles at the time of purchase. Keep in mind that all factory warranties and extended service contracts expire at the mileage or time specified which ever comes first. These things need to be considered when making a decision.
3) Who Is Backing The Warranty- There are many insurance companies out there who offer extended warranties. If you decide to go with one from them make sure it is backed by a financially stable company. A warranty is only as good as the company that provides it. If they go out of business you will be left with no coverage. All major manufactures of vehicles offer their own factory backed extended service contract. It is recommended that if there is an option, always purchase the factory backed warranty even if it is more expensive. When you purchase a factory backed extended warranty the company has a vested interest in your satisfaction as a customer. These warranties will usually mirror the original new car warranty that came with the vehicle and cover more than insurance company backed warranties. You will also be able to bring it to any dealer representing the brand of vehicle you purchased for repairs.
4) How Much Does It Raise My Payment- The prices of extended warranties will vary depending on how much coverage you elect to purchase. When you add this amount to your auto loan it is going to raise your payment. You should weigh your options of whether or not you can afford the increase in payment and whether the peace of mind is worth the difference.
Extended warranties are optional and not a requirement to be approved for a loan. They are however a way for you to guarantee that you will not get hit with any huge repair bills in the future.
