Is a Used Car Extended Warranty Right for You?

While the market for new cars is set to plummet, observers believe that the demand for used autos could heat up in the coming months - assuming lockdowns are eased, and people will need their cars again.

However, one question that consistently comes up when talking about used cars is whether getting an extended warranty is the right option. The answer is that it depends. For many used car buyers, getting an extended warranty is a personal choice, one which is based on getting peace of mind rather than the condition of their car.

For dealers, selling extended warranties can be extremely profitable. So much so that they use these policies to protect their profit. This makes sense as price transparency on the cost of used cars is well established at this point, but transparency on extended warranties is a bit harder for consumers to achieve. However, this is changing as consumers in California and other states can go online to get a quote for used car extended warranty.

Getting down to brass tacks, how do you know if an extended warranty is right for you? For starters, it depends on how long you want to keep your car. This is because many new cars come with a three-year, 36,000-mile warranty, and if you choose your used car correctly – such as the one just coming off a lease – then you might be able to find a vehicle with one year or more left to the original warranty.

As such, you might not need to get an extended warranty as soon as you buy your car. However, you do want to keep in mind that the companies that offer these products might be less likely to provide coverage to a vehicle that has been off warranty for an extended period.

This is not to say that getting an extended warranty for a car that has been driven well past its original coverage period won’t be approved. It just means that you will need to discuss the details of your vehicle with the company selling the coverage.

Furthermore, you want to remember that a warranty only covers mechanical issues and not items like oil changes, tire replacement, or things which are considered “wear items.” This is something which many people confuse when they purchase an extended warranty. For this reason, many people never actually use their extended coverage.

But as previously mentioned, one of the reasons that people will buy a warranty is the peace of mind that the additional coverage provides. Given that our cars are usually the most significant investment we make outside of our homes, this makes sense. After all, the last thing you want is to be stuck with your car stuck in the shop when you need to get to work.

Then there is the fact that many auto industry observers believe that the growth in sales of used cars could outpace new vehicles this year. If this trend continues into next year, then there is a possibility that the supply of off-lease cars entering the used car market could dry up.

This might seem counterintuitive, but the expected economic downturn has the potential to rebalance the car market dramatically. First, sales of new cars are expected to all but dry up. Then, cars from expiring leases will either be purchased by the current leaseholders, especially if car companies eager to generate some revenue offer exclusive deals. The combination of these factors could mean that the number of “new” cars entering the used car market could drop significantly.

The result could be that more older cars find there a way to the used car market, and as such, the need for extended warranties could grow over time. All of this assumes that automakers do not extend their manufacturer’s warranties, but this would be a highly unlikely move for cars that have already been sold.

Getting back to the hard sell when you are buying a used car. The reality is that you do not need to purchase an extended warranty from the dealer. While it is recommended that if you want to buy an extended warranty, you should do shortly after you’ve either purchased your used car or just before the manufacturer’s warranty is set to expire.

So, is a used car extended warranty right for you? The answer is that it depends. Are you more worried about the cost of the warranty or the cost of an expensive repair on an aging car? The answer will depend on your situation but given that it is expected that car owners will hold onto their cars for longer, the need for having an extended warranty might become more critical in the months and years ahead.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes