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Ask Dave

Used car warranties?

A follower on Twitter learns that Dave isn't a fan of used car warranties.

QUESTION: A follower on Twitter asks Dave for his opinion of used car warranties. Dave explains he is not a fan of extended warranties in general, and he especially dislikes used car warranties.

ANSWER: I never recommend extended warranties. Used car warranties are especially bad, because they’re expensive. I advise self-insuring for that sort of thing by saving an emergency fund of three to six months of expenses.

Only about 12 percent of what you spend on an extended warranty goes to cover the cost of repairs. That means around 88 percent is profit, overhead, and commissions. They make a lot of money on that, and you, on average, benefit very little. A lot of used car dealers make more money on the warranties than they do on the cars.

Stay away from that crap.