Finance

Aug 25 2017

Extended Warranty on Used Cars: Is It Worth It? #used #cars


#used car worth
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Extended Warranty on Used Cars: Is It Worth It?

Car dealerships love to give you the option of buying an extended warranty on used cars that they sell. It s often not because they don t trust their cars that they do this, but rather because they know that all cars have problems at one time or another. Cars break down, and extended warranties can help defray the costs of repairs. But is paying for the costs of repairs ahead of time (through a warranty) worth the risk of not having a lot of repairs to make and thus losing money?

Car salesmen get bonuses for selling warranties, so they usually are very good at pitching them. Here is a common argument they may use, exampled by a $2,000, five-year extended warranty pitch.

You say that $2,000 is too expensive for you? Well, let me ask you this. If your car only had to be in the shop for one day in five years, would you call that a dependable car? I think you would. Now, going at our dealership s hourly service labor rate of $92/hr (an average rate), a full nine hours of work would cost you $828. Aggregated national automotive repair shop data results estimate that for every dollar you spend on labor, two dollars is spent on parts. We ll be generous and say 1.5 dollars for parts per dollar of labor, which, in our case, will equal $1,242. Now, with parts and labor combined, you re already over two grand, and that s just one full day of repairs on an otherwise-very-reliable car. Now, not only do you have to pay for the repairs, but you haven t budgeted for them. Can you afford it?

This is a compelling case. Five years is a long time to have a car go with out problems, and when a breakdown is framed in terms of costs, as it is above, warranties seem like a good deal. Ultimately you will have to use your own discretion, because consumer advocates like Consumer Reports generally shy away from recommending such service plans. What you can be sure of is that your car will break down at one time or another, and you need to be ready when it does.


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