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Extended warranty

Very often car dealers offer to buy an extended warranty for your new car. At first sight, it is a reasonable deal. Let us test is with this chart. We input some numbers that can vary both for a factory and extended warranty.

  Warranty type:   Factory warranty  Extended warranty
1 Price  $0  1) ~ $1000
2 Bumper to bumper 3 years / 30000 miles 2) extends for 5 more years 3)
3 Maintenance/Service  You pay for service You pay for service
4 Repair  Warranty pays Warranty pays
5 Power train 2-3 more years No additional extension 5)
6 Deductible  $0 ~ $250  4)
7 Labour $0 You pay for labour 5)
8 Transferable Yes Depends 5)

1) You already paid it (included in the price of your car) 
2) Actually can be up to 10 years / 100000 miles depending on the car brand
3) Actually can be power train warranty only
4) Usually $200-$500, check your warranty
5) Check your warranty

 Usually only the first 4 items are emphasized. It makes an impression that for additional $1000 you buy a factory-like warranty for an additional 5 years. However items 5 to 8 change this impression:
5.  The most expensive part, a power train (engine + transmission) usually already has an extended warranty.
6. A factory warranty pays for parts in full, but an extended warranty pays only above the deductible amount. It means that you pay up to ~ $200 - $500 each time.
7. A factory warranty pays also for labor, but an extended warranty usually does not (additional ~ $50 per hour).  
8. An extended warranty is not necessarily transferable when you sell your car.

There is an additional important factor: you start paying for an extended warranty immediately, when your factory warranty is perfectly valid. It means that the first three (at least) years you pay for nothing. The most serious justification of this is that an extended warranty provides you road assistance. Check if road assistance is included in your factory warranty as well. Also consider to buy  road assistance separately. It may be cheaper and/or include additional services.

This example shows how important the completeness of the chart is.

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