Are extended car warranties always a scam?

 
In short, almost always yes. You may have received a call near the end of your manufacturer’s warranty or sometime after from a company offering to extend it for either a monthly fee or a lump sum. They may have avoided using the word ‘warranty’ but instead offered a ‘service contract’ for repairs. Some of these offers are straight up fraud, where the coverage is nonexistent and the ‘company’ will ghost you the minute they have your money. Others use legal loopholes and carefully worded fine print so that it’s nearly impossible to get them to pay out for anything.
 

Hallmarks of a scammer include:

Cold calling you or robocalling
Sending unsolicited mail
Mailing fake warranty expiration notices supposedly from the manufacturer or DMV
Pressuring you to make an immediate decision
Making vague threats about cancellation of your existing warranty if a payment is not made
Asking for a small processing fee before providing complete information
Asking for immediate payment during the call, in an attempt to collect your credit card or bank account information

 
Never provide personal or financial information. The caller may know a surprising amount of information already about you and your vehicle. They may know your name and address, the make and model of your vehicle, your vehicle's mileage, and the terms of your insurance or warranty agreements. This by no means makes them legitimate. Most of this information can be purchased from data collection companies.

What should you do if you receive one of these calls?

 
If you answer a call and realize it’s a robocaller, hang up immediately. If you are instructed to press a button to continue the call, don’t as that tells their computer system that your phone number is good and is answered by a live human. You may inadvertently increase the number of scam calls by confirming this for them. Never agree to any contract without reading the whole document and fine print and comparing it against the Federal Trade Commission's Auto Service Contracts and Warranties guide. If they are legitimate, they should have a website they can direct you to for more information, and they would send you a copy of the contract terms to review before ever asking for any money. If they claim to be your dealer or manufacturer, ask to call them back. Ignore any callback number they give you and look up the number yourself to call and confirm their identity.

But an extended warranty sounds great, doesn’t it?

 
According to a Consumer Reports survey, 55% of respondents who bought a legitimate extended warranty didn’t use it, and the cost for repairs among respondents who used their warranty was typically less than the cost of the warranty.
 

You can negotiate the price of a marked up extended warranty from the dealer when you purchase a new car, or do a lot of homework to find one of the actual companies out there. (Note: if you wrap an extended warranty into your new car financing, you will be paying interest on it before your factory warranty has even run out!) Some of these ‘legit’ companies often end up going bankrupt, leaving policy holders with a worthless contract and no recourse. Prices and coverage will vary wildly, they generally come with a deductible, and never cover routine maintenance. In fact, if you can’t prove you performed routine maintenance, the company can possibly deny your repair claim.
 

A better solution is to take that lump sum or those monthly payments and put them aside in a savings account for eventual repairs down the road. If you absolutely must have the extended warranty, buying directly through the manufacturer is your safest bet. If you do get burned by a car warranty scam, you can file a report with the FTC.