Car warranty can be pricey

PERSONAL FINANCE

July 18, 2006|By EILEEN AMBROSE | EILEEN AMBROSE,SUN COLUMNIST

Reader Gary O'Connor of Silver Spring writes in an e-mail that he recently bought a 2004 Toyota Camry and has one month to decide whether to plunk down more than $1,000 for an extended warranty. He asks: Is it a good deal or a waste of money?

Extended warranties bring up uneasy feelings. You figure if you buy one, nothing will happen and you've thrown away good money. Don't buy one, and it will be just your luck that the car breaks down every time it rains.

O'Connor's question was posed to three auto experts. Two advised against the warranty.

Consumer Reports' Douglas Love says people generally are better off buying cars noted for reliability. And they don't come more reliable than Toyota's 2004 Camry.

The Camry that year received Consumer Reports' highest rating for reliability. In fact, the 2004 Camry was also rated as "CR's Good Bet as a used vehicle," Love says.

"The thousand dollars this one gentleman is looking at is a substantial amount of money," he adds. Love's advice: Gradually stash cash in a bank account that can be tapped if the car ever needs repairs.

Thumbs down

Robert Ellis with CarBargains, a nonprofit car-buying service, generally gives the thumbs down on extended warranties, too.

He says warranties are like insurance. You need coverage for catastrophic losses that you couldn't afford to pay. If you can handle repairs out-of-pocket, forget the extended warranty, he says.

Still, some people just like the comfort of an extended warranty, Ellis admits. He advises they look at what they fear might happen to the car and make sure the warranty covers it.

(In O'Connor's case, his Toyota may still be covered by the manufacturer's warranty, and he will need to check out how the extended coverage fits in, Ellis says. A manufacturer's warranty expires once a car reaches a certain number of years or miles. )

"The other big factor on used-car warranty coverage: Where does it allow you to get service?" he says. "Is it just at the dealership or a network of dealerships? What if you move?"

Alex Rosten with Edmunds.com, an online provider of auto information, says warranties may not be warranted for the mechanically handy. "But people in America are not terribly mechanical.

"I like extended warranties for the peace of mind it provides," he says. "It's like buying insurance. They don't have to worry."

Extended warranties have huge markups, though. Consumers should try to negotiate a better price, Rosten says.

"That's one of the trickier automotive items to negotiate," he says. "There are no price guides for warranties."

But consumers don't need to buy a warranty from the dealer that sold the car. They should shop around. Call other dealers to find out what they would charge for comparable extended warranties. If prices are lower elsewhere, consumers can use that as leverage in negotiations, Rosten says.

Also, check out www.carbargains.org for an annual survey of the dealers with the lowest mark-ups on extended warranties.

Early tax credit

Baltimore's Internal Revenue Service office suggests a way for some taxpayers to get more money in their paychecks to handle rising gas and utility prices.

Taxpayers who expect to qualify for the Earned Income Tax Credit may be eligible to get part of that credit in advance instead of waiting until next year. The most a filer can receive in advance is $1,648. The money would be distributed throughout the year in workers' paychecks.

"It's a benefit people are entitled to," IRS spokesman Jim Dupree says. "We're trying to get the word out."

To qualify, an individual's income must be under $32,001, or $34,001 for joint filers. Taxpayers also must have at least one qualifying child, which includes children under age 19, living with them.

Workers will need to fill out Form W-5 to get the advance credit. For more information, call 800-829-1040 or visit www.irs.gov/eitc.

College aid

Calling all parents of college students. Are you confounded by the financial aid process? Still in sticker shock over your expected family contribution? We're looking to talk to families about their experiences in financing college. Write personal.finance@baltsun.com

Questions? Comments? Write Eileen.Ambrose@baltsun.com.

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