Should I Buy an Extended Warranty?

Extended warranties – extra protection … or consumer rip-off?

Cars are an expensive consumer purchase – often still the second most expensive thing we buy. The cost of repairs can be very high if something goes wrong. So, extra protection is a good thing, right?

Not really.

I get a lot of enquiries about extended warranties.

Here are just a few:

Nick e-mailed in recently and says his extended warranty from Suttons requires him to get the car serviced twice as often as Holden’s factory service schedule. And he never even read the fine print when he bought the car three years ago.

Julie says her husband wants to drop $2500 on an extended warranty through her insurers, Allianz. She’s been burnt before – ironically enough by the useless extended warranty that came with an oven.

And both Ray and Arun say they’ve had a gutfull because the dealers – respectively a Toyota and a Jeep retailer – are making them jump through all kinds of administrative hoops over their (separate) extended warranty claims.

These kinds of complaints are just a snapshot of the e-mails I get regularly over extended warranties. So let’s be clear.

Extended warranties are a rip-off

Extended warranties are almost always a rip-off. In industry terms they’re an up-sell. An extra. There’s a tidy profit built in to every one. You’re about to buy the car – you want the extra warranty, right, and the in-house insurance, maybe the finance, the paint protection, the rustproofing, the fabric protection. They’ll continue selling you stuff you don’t need until you hemorrhage all over the floor. Would you like fries with that?

The motivation is fear

The extended warranty is sold to you based on fear: fear that something will go wrong. Fear that the bill will be un-jump-overable (if that’s a word).

The reality

Extended warranties are just thinly veiled servicing contracts. You agree to get the car serviced by the warranty provider, in exchange for the warranty. Because you can’t shop around for service, the price is always extortionate. If you’re late, or you take the car elsewhere, the warranty is void because you’ve breached the service contract.

The protection in practice is minimal, and the cost is insufferable. Dealers will try to fob off just about every claim. Fair wear and tear is not covered. That’s fair enough. Owner abuse isn’t covered either. Also fair enough. What’s not fair enough is dealers trying to weasel out of reasonable claims by alleging that the problem is fair wear and tear, or owner abuse, when in fact it’s neither. Or telling you to forget it because you were two weeks late on a service three months ago. And then asking you to supply all the paperwork. Dating back to the beginning of time. Maybe earlier. This happens all the time.

Save your money 

You need to decline the extended warranty offer. The only extended warranty to consider is the factory extended warranty – when Holden (or whomever) is offering five years instead of the standard three for a change. That’s usually a good deal.

Most factory warranties are three years or 100,000 kilometres in Australia. That’s the industry average, although Hyundai, Kia, Mitsubishi, Lexus and Isuzu offer more. So if you’re buying a three-year-old used car, the warranty will generally have already expired. No question. However, under Australian consumer law, carmakers are required to continue to support the vehicle for a reasonable period. In practice, this means if a vehicle is serviced according to the manufacturer’s schedule – and not necessarily by an authorized dealer – and a major component fails, it’s still highly likely the manufacturer will be liable for the cost of repairs.


So if you’re four years down the track in your Volkswagen Golf and the engine just dies, and it’s been serviced regularly, and if you weren’t abusing it, it’s still Volkswagen’s problem. You might have to push them, threaten to go to the media or consumer affairs, but ultimately it will be their responsibility.

What matters here isn’t the length of the warranty, it’s what’s the reasonable service life of the component that lunched itself. In the case of the engine blowing up or otherwise developing a problem after four years of normal operation, that’s completely unreasonable – and Consumer Affairs will force the manufacturer to act, subject to reasonable maintanence and no abuse by you. If the brakes wear out, different story. That’s your problem. But if the sunroof just shatters in the same circumstances, and you didn’t break it, it’s not your problem.

This makes the case for extended warranties even more tenuous than the commercial realities of the underlying servicing contract itself. You are still protected against defects for a reasonable period, despite the expiration of the factory warranty.

The best advice I can give you here is: Save your money – the extended warranty is a world-class rip-off. It’s a solid-gold money spinner for the provider – wholly at your expense. You don’t need it, and the protection it offers is – at best – a joke.

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