Before you sign on the dotted line to become the proud owner of a new vehicle, you'll often be approached to purchase an extended warranty for the vehicle. Extended warranty coverage kicks in once the manufacturer's warranty expires. If you're not planning on keeping the vehicle long enough to see the manufacturer's warranty end, an extended warranty is not a wise buy.
Warranty's Issuer -- Con
If the extended warranty you are considering purchasing is offered by a third party -- not the manufacturer -- there's no guarantee the company will be around in several years when you need the coverage. If you invest the money up front to buy the warranty and the company no longer exists when you need it, you'll have made a worthless investment.
Coverage for Excessive Use or Long Term Ownership -- Pro
If you plan on keeping your car for five or 10 or more years, an extended warranty can be useful. Once the manufacturer's warranty runs out, you'll have the advantage of the extended warranty that can cover your vehicle's repairs. This is especially helpful if you plan on driving your vehicle excessively and racking up the mileage.
Exclusions -- Con
It's important to read the fine print when deciding whether or not to purchase an extended warranty. Some of these warranties exclude so many instances of repairs or replacement parts that the purchase price is not worth what you will receive in return. While many of these type of warranties won't cover car parts that can wear out many times over the life of the vehicle, such as batteries or mufflers, some of them will have more uncommon exclusions such as shock absorbers and brakes. Take the time to read the fine print and ask the issuer of the warranty if you have any questions.
Transferability -- Pro
Some extended warranties will end when you transfer the ownership of the vehicle, while others will not. Having an extended warranty in effect for prospective buyers can sweeten the deal -- especially if you are selling your vehicle privately and not trading it in through a dealer. Before you sign up for an extended warranty, ask if it is transferable.
Other Cons
Since extended warranties differ, it's important to thoroughly understand what the proposed warranty entails before you purchase. For instance, ask if you can take your car anywhere for repairs, or if there's only one or a few choices for repair work. In addition, many extended warranties require that you pay the expenses out-of-pocket and receive reimbursement later, which can sometimes take months. Some extended warranties offer a per-repair deductible, which can add up. You will have to pay the deductible amount -- such as $100 -- for each repair performed during a visit. It's probably better to opt for a per-visit deductible.
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