Dealers often try to sell an extended service contract on a new car, but experts say that the peace of mind may not be worth the extra cost. Often referred to as an “extended warranty,” the dealer may try to package it in with the cost of the car.
However, experts recommend that rather than add-on the extended service contract, buyers should consider putting aside money for repairs in an interest-bearing account. After all, if you opt for the extended service contract, you’re essentially doing just that (without the benefit of interest). And if you finance the contract, you actually end up paying extra in interest.
It shouldn’t come as a surprise that, like most insurance companies, these warranties pay out less than they take in. About 55% of people who chose to purchase the extended warranty never used it.
Those who did use the warranty saved an average of $837 between 2006 and 2010, according to a Consumer Reports survey. The average cost of the warranty was about $1,214.
However, the results of that survey weren’t all negative. Buyers of some brands, like (Mercedes, Chrystler, Dodge and BMW) reported being satisfied with their choice to buy the extended contract.
Did you opt for an extended warranty on your last car? If so, how do you feel about the purchase?
Visit BestDealerLocator.com to find out what new car deals are available in your area.