When I bought my 2016 Honda CRV fresh off the lot (learn about her demise here), I didn't really understand car warranties. The salesperson was pushing it down my throat, and that should have been red flag number one! My grandfather advised me against purchasing it, so that should have been red flag number two. But, of course, I was hard-headed and bought it anyway. So, here is what I learned:
New Cars Already Have a Warranty
Most modern cars come with a 10-year/100,000-mile warranty on the powertrain that applies only to the original purchaser. In my case, I was the first owner, so I didn't really need an extended warranty. After 10 years, the value of the car would be so low, a warranty would be frivolous at that point. Why didn't I think about this earlier? I was clouded by the excitement of buying my very first new car that all common sense went out the window. I let the salesperson talk me into it because he mentioned all of the bells and whistles the car had and how the original warranty didn't cover electrical failure. Blah, blah, blah.
Certified Used Cars Come with a Warranty Too
So, what if I would have purchased a used car instead? If you buy a certified used car from a dealership, they also come with their own warranty. In my research, I found that the average used car warranty is 5-years/60,000-miles. Will that be enough for your needs? Probably. But, it's up to you to properly do your research and see if it makes sense for your car.
Be Careful of Salespeople Slipping Warranties Into the Purchase Price
I know this sounds horrible, but it happens! Please read everything you are signing. I have heard horror stories of shady business practices and customers being forced into extended warranties "without their knowledge." Even though this is not right, it is still your responsibility to read all of the paperwork. The salespeople will try to rush you through signing all of the paperwork, but take your time and read the details. It could save you some hassle later!
Difficulties in Using the Warranty
This may have just been my experience, but I ran into a variety of issues with the new car as soon as I drove it off the lot. It wasn't a manufacturing issue but rather dealership issues. Some items were missing from the vehicle that I had paid for, namely, my second set of keys and the trunk liner. It was challenging to get those items from the service center so I could imagine the difficulties when using a warranty.
Good News: Extended Warranties are Refundable
When I sold my car almost 2 years later, I found out that I could get a check back for the warranty that I purchased. Cha-ching! I did not know this before wanting to sell the car. I thought it was just going to be a sunk cost. Luckily, there was an honest employee in the dealership's financing department that let me know. All I had to do was submit a letter saying that I wanted to cancel. They processed my refund, and I sold my car soon after. I was not expecting that extra cash, so I was glad I talked to someone willing to help.
Interest is Being Charged on the Warranty
Think about it, when you purchase an extended warranty, the dealership adds it to your purchase price, and the purchase price is what ends up being financed. So, you are being charged interest on the extended warranty as well. Even though it seems like a small amount (typically around $700), if you spread that cost over the life of the loan, it adds up! This is something else I didn't think about when I said yes.
I am not a fan of extended warranties after I had my first and last experience, but you decide what is best for your situation. Have you purchased an extended warranty before? Did you think it was worth it?
Side note: I had a conversation with a car salesman at another dealership, and he said they will get over on people that are not knowledgable on the process and what's going on. He shared this with me because he realized I knew quite a bit about the process, and he was shocked. Moral of the story: Knowledge is power!