4 Reasons You Don't Need an Extended Warranty on Your Car

When you're at the car dealership, riding that high of new car smell mixed with the intoxicating scent of potential financial regret, you might find yourself cornered by a well-dressed salesperson extolling the virtues of an extended warranty. "It's just a little extra security," they coo, sliding glossy brochures across the desk.

But before you nod along and sign away your child's college fund, let's pump the brakes. Here are a few reasons why getting an extended warranty on top of your car insurance policy might not be the superhero cape for your car that it's made out to be.

1. The cost-benefit conundrum

Let's start with your wallet's favorite topic: money. Extended warranties often resemble a bet where only the house wins. The average total cost of an extended car warranty is about $2,500, according to a MarketWatch survey. You're laying down extra cash on the chance that you might spend more on repairs than the warranty itself.

But here's the kicker: Dealerships and warranty providers aren't in the business of losing money. These warranties are priced to profit, meaning statistically, most folks don't use the full value of the warranty. In fact, the warranty market had a global revenue of over $139 billion in 2023, according to Research and Markets.

To put it into perspective, the average car repair costs are often less than $500 a year, per Cars.com. Value-wise, it depends on the length of your extended warranty (typically they range from two to seven years.) Over two years, you might only rack up $1,000 in repairs, way less than the warranty's cost. This gap closes a bit with each additional year -- by five years, repair costs might match the warranty.

Ultimately, rather than tossing and turning at night worrying about potential car repairs, you could put those would-be warranty dollars into a savings account. Call it your "Oh No! Fund." If something breaks, hey, you're covered thanks to having both money put aside and great value car insurance. If nothing breaks, you're now the proud owner of a vacation fund. Either way, you win.

2. You already have a manufacturer's warranty

Chances are, your new chariot comes with a manufacturer's warranty that already covers quite a bit of ground. These warranties typically last for several years or a set number of miles, whichever comes first. A lot of these extended warranties start their coverage clock the minute you drive off the lot, overlapping with the existing warranty. It's like wearing two raincoats. Sure, you might stay extra dry, but isn't one enough?

This redundancy makes the extended warranty less valuable and adds a layer of, "Did I really need this?" every time you look at your car payment. Plus, the likelihood of encountering severe issues that aren't covered by the manufacturer's warranty but are covered by the extended warranty during that overlap period is extremely slim.

3. There are exclusions and exceptions galore

Have you ever tried reading the fine print on these warranties? It's like diving into a novel where the plot is just a list of things that could go wrong with your car, and the twist is that none of them are covered. Extended warranties come packed with exclusions ranging from "normal wear and tear" to "acts of God." If lightning strikes your engine, that's between you and Zeus.

Plus, certain repairs must be done at specific shops or require pre-approval. Picture this: You're stranded on the side of the road, and your engine has just dramatically given up. But instead of a simple tow and fix, you're now on hold with warranty customer service, listening to elevator music, and debating whether to laugh or cry.

All forms of car insurance come with exclusions and exceptions. However, most regular car insurance policies give you essential protection against accidents and theft. Extended warranties give additional coverage, as they include routine mechanical wear and tear. It is important to understand what is and is not included before you pay extra for an extended warranty.

4. The peace-of-mind myth

Finally, let's talk about peace of mind -- often the final fortress that extended warranty advocates retreat to. "It's worth it for the peace of mind," they say. But true peace of mind comes from knowing you're not overspending on protections that, statistically, you won't use. It comes from having control over your finances and making informed choices, not from hedging against every conceivable scenario that might (but probably won't) happen.

So, while an extended warranty can be right for some people -- like those who plan to keep their car until it's old enough to vote -- for many, it's an expensive and unnecessary add-on. Your best bet is to research your car's reliability, understand what's already covered, and maybe set aside some cash in that "Oh No! Fund." That way, you can drive off into the sunset, secure in the knowledge that you made a savvy financial decision -- or at least avoided paying for double raincoats.