This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Thursday, March 20, 2008

Buy reliability, not a warranty

Posted by Matt

Here's another chance for you to learn from my mistakes. I'm embarrassed to admit it, but the first time that I bought a car (used) from a dealership, I got talked into buying an add-on warranty. It was an unusual one in that it required that you apply some kind of treatment to the car, but ultimately that helped me because I was able to return the unopened box of chemicals when I came to my senses a few days later. Anyway, I was young and naive.

Thanks to a recent newsletter from Clark Howard, I found a great Consumer Reports article to back up what most people already know: extended warranties are a horrible deal. In case you are part of the 25% of their survey respondents who BELIEVE in extended warranties, let me hit you with some highlights:
  • Only 1 in 5 people in the survey who purchased extended warranties achieved a net savings.

  • 42% of the extended warranties were not used AT ALL, in most cases because the vehicle didn't need repairs or the standard manufacturer's warranty sufficed.

  • The car brand that required the most warranty claims was Mercedes-Benz, but still, only 38% of those owners came out ahead.

The numbers weigh heavily against extended warranties, so instead of spending your hard-earned money on one, put it towards a more reliable car! After all, a warranty AT BEST can only reimburse you for repairs; wouldn't you rather stay out of the shop altogether?

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