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Is it worth it to buy extended warranty?

When you're in the process of buying a new car, you may be offered an extended service contract. You may wonder what this is and whether it represents good value.

Published January 26, 2008
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<p> </p><p>When you're in the process of buying a new car, you may be offered an extended service contract. You may wonder what this is and whether it represents good value.</p><p> An extended service contract kicks in after a standard factory warranty expires. Available on all new and pre-owned vehicles, they are sold by both dealerships and third-party vendors. They cost roughly $1,000 to $2,500.</p><p> Are they for everyone? No. </p><p> For many people, a standard factory warranty provides ample coverage for their requirements, and for the length of time they plan on keeping their vehicles. In such cases, an extended service contract would represent an additional – and unnecessary – expense.</p><p> However, even the best factory warranties eventually expire, and when they do, some drivers will be affected more than others. If you drive a vehicle after the standard factory warranty has expired, then you're a potential candidate for an extended service contract.</p><p> To determine whether to buy one, you need to understand your driving needs while you own or lease your vehicle. If you buy a new car and plan on driving it for many years, purchasing additional coverage may be a wise investment. The cost of the warranty could pay for itself with a single repair bill.</p><p> But if you plan on driving a new car for three years or less, and put on less than 100,000 kilometres, an extended service contract will probably not prove worthwhile. </p><p> When considering an extended service contract, look at the reliability record of your vehicle model. Some are more prone to breaking down after a standard warranty expires; others have excellent long-term performance records. </p><p> You should pay attention to the details of the contract. Some contracts require "per visit" deductibles. Others impose "per repair" deductibles, meaning owners must pay a set amount for each item that needs work.</p><p> Some extended service contracts stipulate that you must pay for any repairs out of pocket – you submit the receipt and wait for reimbursement. Others will pay the repair shop directly on your behalf. </p><p> Other contracts require drivers to do regular scheduled maintenance on their vehicles. If the owner fails to meet these criteria, the insurer could (and probably will) refuse to honour any claims. </p><p> Extended service contracts can be purchased when you buy the vehicle, or afterwards. When you first buy a car, you may not think you'll need it. Circumstances change, however, and you may find yourself requiring more extensive protection, if you plan on keeping a car longer than you originally planned.</p><p> For added protection, make sure the company offering the contract is insured. I know people who have gone with third-party vendors, only to discover that their contracts were worthless after the company went out of business.</p><p> On used vehicles offered for sale at dealerships, warranty protections take several forms. Many late model vehicles will have the balance of an existing warranty available (most warranties are transferable). </p><p> If it's an older model vehicle, the dealership and/or manufacturer might offer an extended warranty on the vehicle, if the original warranty has expired. The cost of such a warranty is often included in the selling price.</p><p><em>This column represents the views</em></p><p><em> of TADA. Email <a href="mailto:president@tada.ca">president@tada.ca</a></em></p><p><em> or visit <a target="_blank" href="http://www.tada.ca">www.tada.ca</a>.</em></p><p> </p>