There’s a TV commercial extolling the benefits of an extended car warranty. It shows one client relaxing comfortably in the waiting room of his car repair shop (he has the auto extended warranty). Then there is another guy angry and frustated that he’ll have to pay for his auto repairs (he obviously doesn’t have an extended plan). What’s interesting is that the commercial repeatedly states that, with the warranty, the repair is free. This is a tad misleading…
The commercial notes that the gentleman with the warranty will not have to pay the $1,200 to replace his electronic control unit. However, the reality is that extended car warranties that have no deductible and cover these types of electronic components cost $2,000 to $4,000 – up front. This is far from free.
At the $2,000 mark, this guy’s car still needs $800 in covered repairs just to break even, provided the warranty doesn’t expire. They go on to say that towing is covered 100% and that they will pay your repair shop directly. There are problems with both these statements as well.
If you read the fine print, towing is only covered certain distances – don’t think they’ll let you tow it back to your trusty local mechanic if you break down 200 miles away. Moreover, the car repair shop is under no obligation to accept money from “your” extended warranty company. You may be required to pay up front and then get reimbursed. Most importantly, as we discuss regularly, auto repair estimates fluctuate greatly. If your car needs $2,000 worth of work, your extended warranty may (according to their estimates) only pay $1,700. Your stuck paying the difference of $300.
Some folks can benefit from extended warranties. Click to learn more about Extended Car Warranties