Used car warranties?

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Posted: Nov 09, 2017 12:01 AM

Dear Dave,

What is your opinion of used car warranties?

Anonymous

Dear Anonymous,

I’m not a fan of extended warranties in general, and I especially dislike used car warranties. In my mind, they’re bad because they’re expensive and — on average — of little benefit to the buyer.

Did you know, in many cases, only about 12 percent of what you pay for used car warranties goes to cover the cost of repairs? That means around 88 percent goes toward profit, overhead, and commissions. In fact, some used car dealers make more money from the sale of extended warranties than they do on the sale of actual cars.

The best way to cover yourself is to buy smart and self-insure. Save up an emergency fund of three to six months of expenses, and stay away from stuff like used car warranties!

—Dave