Should You Have An Extended Auto Warranty? Two Crucial Factors to Consider

The Cost of Vehicle Ownership

Owning a vehicle is a significant financial commitment, and maintaining it is generally more cost-effective than replacing it. Companies offering extended auto warranties understand this well. They target customers who plan to keep their vehicles for more than two or three years. According to a study by IHS Markit, the average age of vehicles on the road in the U.S. is 12.1 years as of 2021, indicating that many consumers are holding onto their cars longer than ever before (source).

Short-Term Ownership: Is an Extended Warranty Necessary?

If you plan to keep your car for less than three years, an extended warranty might not be necessary. Most new vehicles come with a manufacturer's warranty that typically covers major repairs during this period. According to Consumer Reports, the likelihood of needing significant repairs within the first three years is relatively low (source). Therefore, if you fall into this category, you might want to skip the extended warranty.

Long-Term Ownership and High Mileage: A Case for Extended Warranties

For those who intend to keep their vehicles for more than three years or drive more than the average 12,000 miles per year, an extended warranty could be beneficial. For instance, salespeople or frequent travelers often exceed the mileage limits of standard manufacturer warranties, increasing the likelihood of wear and tear. According to the Federal Highway Administration, the average American drives about 13,500 miles per year (source). If you exceed this average, an extended warranty might be a wise investment.

Wear and Tear Over Time

Long-term vehicle ownership inevitably leads to wear and tear. Components like the transmission, engine, and electrical systems are more likely to fail as the vehicle ages. Extended warranties can cover these costly repairs, providing peace of mind. According to AAA, the average cost of a new transmission can range from $1,800 to $3,400 (source).

How to Purchase an Extended Warranty

There are several avenues to purchase an extended auto warranty:

1. Dealerships: Many people opt to buy extended warranties directly from the dealership when purchasing a vehicle. This option allows you to roll the cost into your vehicle financing.
2. Third-Party Providers: Numerous third-party companies offer extended warranties. You might receive solicitations via mail or find options online.

Comparing Warranty Options

When shopping for an extended warranty, it's crucial to compare what each plan covers. Some warranties include roadside assistance at no extra cost, available 24/7, while others may require a deductible. According to J.D. Power, the average cost of an extended warranty ranges from $1,000 to $3,000, depending on the coverage and vehicle (source).

Conclusion

When deciding whether to purchase an extended auto warranty, consider how long you plan to keep your vehicle and your annual mileage. For short-term owners, the manufacturer's warranty may suffice. However, long-term owners and high-mileage drivers could benefit significantly from the added protection of an extended warranty.

By weighing these factors, you can make an informed decision that aligns with your vehicle ownership goals and financial situation.