With some poor luck (and poor choice of car), you could have to pay outright for a repair (transmission replacement, for example) that costs more than the price of an extended warranty.
On the other hand, if you don’t buy a warranty, you’ll have the cash set aside for those big repairs. Many car owners feel that if they don’t buy one of those extended car warranties (usually at the urging of a salesperson), they will certainly get that one repair that does cost more than the warranty, a lot more. And it will happen just after the new car warranty expires.
Warranty buyers see their warranties like insurance. They buy the with the hopes that they won’t get used, but if something does happen, they have limited their financial risks to the amount of the warranty.
That notion of limited risk buys “piece of mind” but in the end makes poor financial sense.
Here’s the problem: EXTENDED WARRANTY COMPANIES HAVE A POOR RECORD OF ACTUALLY PAYING OUT WHEN NEEDED
While extended warranties offered by manufacturers often cost more than aftermarket extended warranties, the consensus is manufacturers plans pay off with greater ease than the aftermarket plans. The manufacturer has a name to protect, right? And they want you to buy another one of their cars, too. But what does ABC Car Warranty LLC have to lose by not paying your claim? Your future business? They don’t have many repeat customers. What about their reputation? How many people even know ABC Car Warranty LLC exists?
Conclusion
There are, in fact, honest extended warranty companies. But the issue is…how do you verify their honesty? There’s no Consumer Reports to refer to, and you have no access to their customers. Because there is no reliable way of determining an extended warranty company’s performance, we strongly discourage you from buying these warranties. Buy directly from the manufacturer (yes, you can negotiate these deals) or simply put cash aside for repairs if you’re going to drive a used car.