The first thing to know about any car warranty is that it’s basically a bet.
But is it a good one . . . for you?
The issuer is like the guy running the baccarat table at The Sands in Vegas. He is wagering that you’ll definitely pay him – and that he probably won’t have to pay you.
He’s not the mark, in other words.
Warranties aren’t randomly selected time and mileage intervals. Those time and mileage intervals are based on extensive in-house durability testing of the vehicle – and meticulous cost-benefit analysis.
The “house” is betting that the warranted vehicle won’t need more than the usual maintenance-related things while the warranty is in effect. That’s how money’s made, you see.
It is always possible something will go wrong, of course. And it’s actually likely that something will go wrong. Nothing made by man is any more perfect than the men who made it.
But the odds are it won’t be a big thing that goes wrong.
And no matter what goes wrong, you’ve already paid for it anyway.
The car manufacturers do a lot of heavy math. Whatever the car’s sticker price is, it includes the potential cost of the most-likely big-ticket repairs that would be covered under warranty – factored out over what it charges for all the cars it sells.
If the manufacturer has to pay out some money to a dealership to fix your car, that cost has already been spread out over what it charged everyone who bought a car. It’s a business, remember.
The new car warranty only seems free.
It’s also why aftermarket or extended warranties – the post-warranty warranty coverage often offered with used vehicles – almost always cost obviously extra.
It is not easy to fold the cost of a post-warranty warranty into the price of a used car, because used car prices aren’t set inscrutably – by the manufacturer, behind closed doors and according to their own internal formulas – but by the market. Which only places a value on the car itself – not the car plus what it’s likely to cost to fix it.
It is also more likely that it will need fixing – because it’s used and no matter how well-maintained and treated, things just wear out over time. The degree of wearing out may vary from one car to another, but no car is immune.
The older the car – and the higher the miles – the worse the odds.
The prices of these post-warranty warranties also vary according to the particular make/model and year car being covered. Because some cars have better track records than others. And because some cost more to fix when something breaks than others do.
But the thing to keep in mind is that if you purchase one of these post-warranty warranties, you are pre-paying for what the issuer of the warranty calculates it may cost to fix the car.
Just the same as with a new car, only it’s more obvious because you have to cut a separate check.
The worst part of this deal, though, is that if nothing does go wrong, you’ve still paid.
A better deal might be to pay yourself – by setting aside a sum equivalent to the cost of the post-warranty warranty in a “just in case fund.” The big upside being that if the car doesn’t need an expensive repair, you won’t have to pay for it.
Or, haggle the price of the post-warranty warranty down. Better yet, get them to include it at no additional charge as part of the deal.
This is one of the great upsides of both the used car and the used-car post-warranty coverage: Everything’s negotiable.
The first is that post-warranty warranties sometimes contain dodgy fine print written specifically to avoid paying on a claim. It is at least as important to read – and understand – what’s covered (and not) as it is to decide whether it’s worth paying for the coverage.
Two, post-warranty warranties are often not issued by the manufacturer (something you never have to worry about with a factory new car warranty) and the company which issued it may or may not be around in two or three years from now – leaving you holding the bag for both the transmission repair your car needs and the cost of the warranty which you assumed would cover it.
. . .
Got a question about cars – or anything else? Click on the “ask Eric” link and send ’em in!
If you like what you’ve found here please consider supporting EPautos.
PS: Get an EPautos magnet (pictured below) in return for a $20 or more one-time donation or a $5 or more monthly recurring donation. (Please be sure to tell us you want a sticker – and also, provide an address, so we know where to mail the thing!)
My latest eBook is also available for your favorite price – free! Click here.