Refundable Extended Used Car Warranties - Good or Bad idea?
A friend of mine is buying a used car from a dealer tomorrow and has to make a call on warrantee. Basically, the car is under powertrain for about another year but is out of comprehensive warrantee. So the dealer has offered a 48 month / 40,000km warrantee that is intended to replace the comprehensive. It costs about $2800 for that, and apparently if the warrantee isn't used, you get about $1800 of it back in four years (vehicle cost is about $25,000). The vehicle is generally reliable.
There are a number of issues here - present value of money (considering forgone interest you're getting somewhat less than $1800 back in reality), the fact that clearly these things must make money for the dealers, and the likelihood of any problems with cabin electronics.
In general, what are peoples' opinions of these? Worth doing, or a waste of money?
Nope - premise is 10,000 km / year. Though there is a 50,000km and 60,000km version, there's a whole range of alternatives with different prices. Same concept.
I think it's waste of money. If the car itself is generally reliable, then major component won't fail in that time frame. Changing wearable items like tires, brakes, and oil changes should be all that should be needed and keep the money in the bank. If you can do some of maintenance DIY, then more money in the bank. If there is history of certain major failure (Consumer Report should give you some idea), then take the warranty offer.
My advice is probably not the best you'll get but...
I have an unjustified sincere hatred of all things extended warranty. It is a huge money maker for anybody that sells them. That is not to say they are all bad. Sure they could save somebodies bacon at some point.
If the dealer stands behind the product, why the need for the extra warranty? Is he selling a piece of crap?
Some people are willing to pay for piece of mind which is fine, its their money.
I would ask for the warranty documents and comb through them to see what exactly is covered. There could be things that you have covered anyways, etc etc...
My reasoning may not be sound, and some may have a compelling argument that supports extended warranties.
Think of it like gambling and the dealership is the house. Probability says the house will win - they wouldn't make this offer to you otherwise. The smart bet is to say no thank you.
Location: Close enough to make a beer run during a TV timeout
Exp:
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Originally Posted by AR_Six
Nope - premise is 10,000 km / year. Though there is a 50,000km and 60,000km version, there's a whole range of alternatives with different prices. Same concept.
My point was that 20,000 km per year is already pretty low; and that I don't know anybody that only puts 10,000 on a vehicle that isn't retired. I don't drive to work much (50 days per year), and subtracting my two major road trips I have 30,000 km on my 25 month old car.
It could be a 20 year, 40,000 km warranty. It will still expire in about 2 year with normal use. Is the warranty worth that much? How does the "if it's used" thing work? If there is a $500 repair job 6 months from now, will your friend be tempted to pay out of pocket in order to save his $1800 refund?
I'm going to add a poll. I know some of the people responding will want more complicated answers like negotiation, etc. However I'm going to keep it yes or no.
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These things are B.S. It's basically insurance for the dealership that you will never ever cash in on the warranty and risk losing your $1800 that is being dangled in front of you as a temptation not to let the warranty pay for it.
Let's say you do have a problem with the car. You bring it in and they start diagnosing it. You have to tell them whether you are going to use the warranty or not since once you use it for ANYTHING it nullifies the warranty payback. So you stick yourself in a situation where you have to guess whether it is worth it to use the warranty or pay out of pocket, so you'll likely pay out of pocket until you find out if it's a giant repair or not and then you end up losing the warranty payback.
These warranty people are getting very imaginitive. This is a warranty that "rewards" you for not using the warranty and fixing little things out of pocket in order to get the $1800 back which is just tacked on to the beginning in the first place.
The way Warranty's and Insurance have evolved really really GMG's.
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Good points by all. I guess the enticing thing about it is that at the end of the day, if not used, she's out about $900. Fixing, say, the navigation system would probably cost thousands. Same with things like heated seats, sound system, various electronic components... So a $900 warranty that covers a variety of things that will cost far in excess of that amount seems more reasonable. Though I guess at the point that you use it, it becomes a $2700 warrantee.
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Originally Posted by ken0042
My point was that 20,000 km per year is already pretty low; and that I don't know anybody that only puts 10,000 on a vehicle that isn't retired.
I actually don't; I almost never drive to work except on weekends and use my car almost exclusively on out of town trips. In 18 months I have maybe 5000km on it. However, in her case I expect the real total would be something like 15,000km. So assume it's 2.5-3 years then.
Quote:
How does the "if it's used" thing work? If there is a $500 repair job 6 months from now, will your friend be tempted to pay out of pocket in order to save his $1800 refund?
In 6 months you'd think you'd use the warrantee. If it were 3.5 years from now and the warrantee was about to expire anyway you'd probably pay out of pocket, I would think.
Something that hasn't been mentioned is the friends financial situation.
Can he afford to spend $1000 next year if something needs to be fixed? If he is bad at budgeting and will instead spend the savings on gravy with his fries and organic free trade food leaving him in a dire financial situation should a repair bill come up then the warranty may be a good thing.
I assume the warranty is rolled into the price so he would be paying for it for a few years.
I am pretty busy today, but I will drop some semi-pro advice.
If it is a manufacturers endorsed warranty, I would have no issues with it.
If it is a third party plan, I would do my homework on the provider, there are some pretty sketchy plans on the market. Instead of telling you who is bad, I will tell you who you can trust IMHO. First Canadian, and Secure Drive are the two I would certainly recommend. Secure drive especially because they are actually the administrator for a lot of manufacturers program. But always, ask for the manufacturers backed plan first and foremost, even if it costs more. If you have a dispute, you can go right to the manufacturer for assistance. That option does not exist with 3rd party.
As far as refund on warranties (Claims free reward in the industry term), I tell my customers not to use that as a motivating factor in making their decision. Because yes, you could make more money of you simply invested the funds over a long term because you are only getting a portion of it back. You buy an extended warranty is you are unsure if you can fork over 8 grand for an engine. It is a nice bonus, but that is all it is, a bonus. The attrition rate is about 95% meaning most people either sell the car, trade the car, or make a claim. If any of the three happen before the term is up, you forfeit the refund. And it is term, not miles the refund is determined by. So even if you burn through your allowable km's a year early, you still need to wait out the term and still own the car to get the refund.
The majority of the warranties we sell are to people with lower income, and they blend it into their financing because $40/mth is better than $4000 in one hit. Wealthy people, more or less just self insure.
In conclusion, I have never seen a horror story when someone has bought a warranty. I have seen 20,000 engine replacements done on TDI Touaregs. I also had a BMW M3 get basically an entire power train with a third party supplier when a clutch detonated and ended up blowing the engine. He just has to weigh out if he wants to pay now, or pay later, and take the risk of paying way more later.
The last thing to bear in mind, extended plans have a huge value if you sell the car used. They are not transferable if you trade it, so they have little value to a dealer, but on the private market, the rule of thumb is each year of coverage, is worth +/- $1200.
Hope this helps.
So without knowing your buddies exact financial situation / motivating factors / make model year of car, I would have to make my vote:
Unless of course he is dealing with our dealership... then he should buy the warranty.
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Hah - well it's being offered by an Infiniti dealership on a used Infiniti, if that makes a difference. The 95% attrition rate is very useful information. She isn't lower income but isn't rolling in dough, either. Essentially she would be able to afford the repairs if it breaks (has a decent savings account I understand, which is where the down payment's coming out of).
As I say, the powertrain warrantee still has over a year on it. And the car itself is generally reliable. You never know with electronics, though. If the only reason this makes sense is a major engine repair I'm not sure it's worth doing.
I think Pylon summed it up nicely. I know people who bought these claim free reward type of warranties (pay $3000 now and if claim free after 3 years, $2000 back). To them, it's a only a $1000 warranty but it's gimmick to me. If you are buying a relatively new car, on average, you shouldn't be hit with a $5K tranny job.
Even if you did get hit with a $5K tranny job, you're only saving $2K ($5K minus the $3K premium). These type of warranties appeal to the insecurity of human nature. To me security lies in improving our financial situation so a $5K tranny job does not wreck our life and not in these gimmicky warranties.
Rather than make a new thread, I'll add to this one.
Just purchased a vehicle last night (finally) - an 2010 Acura with just 25,000 kms on it.
The dealer of course is pushing the extend warranty - $2000 for 72 months (the amount I put on in kms per year, I won't likely exceed km limit). It's through FCPP, who seem to get less than stellar reviews.
Revitalize the unofficial poll - should I get or no?
Refundable Extended Used Car Warranties - Good or Bad idea?
