Should I buy the extras when buying a car?

Published in CarSmart Eletter, Written by Viraf Baliwalla, 2015-03-09

Victory!! You have just finished negotiating the price of your new car with the salesperson and you believe you've hammered out a good deal. You feel satisfied with yourself and strut back to their desk with a sense of bravado. The deal is done as far as you are concerned, but is it?

The salesperson starts to fill out the paperwork but before it is completed, you must pass through the next level of the dragon's lair. Little do you realize that, like a video game, you have only passed stage 1 and each new level brings with it challenges that you did not expect.

The next level is the business office and the gatekeeper is the business manager whose job it is to make you see the long term benefits of buying additional products and services before you can attain the holy grail (ie: before you leave with the car). There are things like extended warranties, rustproofing, life and disability insurance, and many more things that the business office extraction machine offers to separate you from your money. However, before you decide that this is only a cash grab and simply decline everything, you should know that these extras are worth considering depending on your circumstances.

Many people go into a dealership with full intention of buying a car and nothing extra, however walk out with a contract full of safeguards to protect them against this or that. Are they fools? Or did they make wise choices? And what about those that didn't buy anything extra. Will they be kicking themselves later on?

The answers all lie in the theory of probabilities as well as one's own sense of risk and level of risk tolerance. There is no right or wrong answer. It is about the peace of mind that one expects in case something happens versus the chance that they are willing to take.

The biggest fear that people have that prevents them from buying additional levels of protection is the very likely possibility that they may never use them, in which case they have spent the money for nothing.

Over the next few issues, I will talk about several of the protection products and when you should or should not buy them. In this issue, I will focus on Extended Warranties.

Extended Warranties are for protection against expensive mechanical and/or electrical repairs, depending on the coverage level purchased, after the manufacturer warranty has expired. You can get something as simple as a powertrain warranty or a comprehensive plan which includes many more components. Standard wear and tear items like brakes and tires are never covered by any warranty, not even the manufacturer's original warranty.

All warranties are not the same and you should compare what is covered before you agree to purchase one. Most new vehicles provide a comprehensive warranty for 3 years or 60,000 km. The powertrain is typically covered for 5 years, 100,000 km. Companies like Hyundai, Kia and Mitsubishi provide a much longer comprehensive warranty.

On a new car, I don't typically recommend buying extended warranties at the time of purchase. If one wants the peace of mind of having coverage beyond the manufacturer warranty, I suggest waiting till closer to the date the manufacturer warranty is over, and purchasing one then. If anyone tells you that it is not available at that time or will cost a lot more, don't believe it.

On a used car where the manufacturer warranty is over, an extended warranty would be worthwhile because that is when problems start to happen. Cars are, after all, just machines and can break down after a certain amount of use. But be careful as prices and coverages vary from dealer to dealer and the warranty products they carry. Make sure that any warranty coverage you purchase is backed by a strong insurance company. There have been many fly-by-night operators in the industry that have disappeared by the time people started making claims.

Those that are buying low budget and/or high mileage used vehicles where the warranty is over should especially consider an extended warranty to protect themselves. The reason the vehicle is at such a low price is because it is very likely at the problematic stage. By declining the warranty, you may be opening yourself up to some very expensive repairs in the not too distant future. When that happens, and it will, the warranty will no longer become an added expense but a good investment.

I do a lot of advocacy work on behalf of consumers and often hear of challenges people have with their cars. Although I normally side with the consumer on most issues, I often hear about situations where people have declined a warranty and decided to chance it in order to cut costs. Unfortunately, when they end up having a problem, they then blame the dealer for being dishonest and selling them a problem vehicle.

I can't speak for all dealers, however our company has vetted warranty companies and considers 3 things:

• the comprehensiveness of coverage and price (as far as I am concerned, buying a powertrain warranty is a waste of money. It is cheap but if you're going to buy protection, buy proper protection)
• the flexibility of garages and geography where repairs can be done (you don't want to be stuck with having to take the vehicle to a garage that is inconvenient for you, especially if travelling)
• the benefit if there are no claims made (we use a product where if no claims are made, then you can double your warranty for an extra $149. This helps with the fear of "what if I don't use it").