By Stephen Markley on March 25, 2008
A Consumer Reports survey cautions that despite the hype dealers give extended warranties, the added benefits probably aren’t worth the costs. According to the report, consumers paid out an average of $1,000 and saved only $700 in repairs.
The trick is that as vehicles have become more reliable, the likelihood that they will need extensive repairs for a "nightmare" scenario has decreased. Therefore, an extended warranty is insurance for a situation that will probably never occur, or — as Consumer Reports put it — it’s like betting against the house. The game is always rigged so the house reaps the reward because consumers tend to overestimate how much of a safety net they need.
Does this mean all extended warranties are bogus and trying to stay on the safe side is foolish? Of course not. In fact, there are probably plenty of car buyers out there who've had their behinds saved by an extended warranty. However, there are other options for emergency automotive repairs, such as putting the money you would have spent on the warranty into a mutual fund.
Let us know what your experiences have been with extended warranties. Will you buy one with your next car?