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Don't Do This: Extended Warranty

Discussion in 'Gen 3 Prius Care, Maintenance & Troubleshooting' started by bluewhale, Mar 31, 2011.

  1. draheim

    draheim Member

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    I had the same experience as the OP, documented in another thread here. Bought the Platinum warranty w/ the car ($2,100 I think), then had second thoughts and canceled it about a month later. Amount was deducted from the principal so car just gets paid off 3 months earlier. If I decide before 36 months that I do want a warranty, I'll buy it through this site or elsewhere for far less than $2,100.

    Bottom line, in my case anyway: Go in knowing what you want to buy and don't allow yourself to be swayed.
     
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  2. Prius2010NC

    Prius2010NC Junior Member

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    Toyota isn't screwing with anyone, it is the independent dealer.

    Their job is to make money any way that they can even if it means screwing their own customer. Sure makes us want to return to them for any mechanical work.

    The warranty that several people have posted just extends the original warranty to 100K or 125k. It doesn't add that amount to current mileage.

    Buying just before it you hit 36,000 miles or 36 months is a good idea.
    Put that money into an account that bears the most interest that you can remove it without penalty. Why let your dealership take the money and make interest?

    Put in now, over the three years with something like Edward Jones at 7%, that adds up very quickly. Either the full amount into the account or a lesser amount that will become the full amount at the 36 months term.

    I am putting my difference in gas money from the 22mpg I got to the 50mpg I now get. At 100k miles I will have saved $8,462.28 and $12,693 at 150K, $16,924 at 200k miles.

    Placed in an interest bearing account, by the time this car is due to be replaced, it will actually buy my next one as well.

    Saving now will also pay for your car and you won't have to borrow the money. Sad that a $20K car at the end of payments, we pay over $32k for the car.
     
  3. Prius2010NC

    Prius2010NC Junior Member

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    I paid a little extra for the 125K mile warranty.
    More possibility between 100-125 of something breaking.

    Door locks, power windows, wiper machine...

    The choice to be made is, can you afford the repairs at your dealership if something breaks and do you trust them not to price gouge you for them.

    On my toyota pickup, they wanted $117 for an oil, lube and checkup.
    Midas did the same one for $54. Some dealerships are greedy.
     
  4. Judgeless

    Judgeless Senior Member

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    I do not understand that logic.

    Why would something that lasted 100,000 miles break when you hit 100,000 miles? I put 305,000 miles on my 2000 Toyota 4Runner and spent less than $1,000 in total repairs over 10 years. The first thing that went was the front brakes at 180,000 miles. The starter died around 220,000 miles.
     
  5. tomstodola

    tomstodola Member

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    I paid cash for my Prius. During the paperwork phase the finance guy tried to sell me a bunch of add ons. I figure that the cost of the extras would have been over $4500. the hybrid battery in California is 8 years/150,000 miles. I was not very happy with the fellow since he made it sound like the car would just completely blow up at 36,001 miles.
    I don't like the tactic. the sales guy tells you how reliable the car is (and they are), and the finance guy tells you how unreliable the car could be.
    I didn't say anything other than "no" to every offer. I hammered the guy in the survey they mailed to me.
     
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  6. twittel

    twittel Senior Member

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    +1: And that my friends is how you manage your money!
    The extras are nice, extended contracts give comfort, but in the final analysis, it's what's in your car's bank account. My money says Prius will have a huge balance at the end of the life-cycle without a service contract.
     
  7. unkprius

    unkprius Member

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    Some people feel better buying the extended warranty coverage, knowing they very likely wouldn't need it.

    Some people feel better not buying the extended warranty coverage, knowing they very likely wouldn't need it.

    Whichever gets you a good night's sleep.
     
  8. SageBrush

    SageBrush Senior Member

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    ^^ Smart people prefer that the money is in their pocket and not with someone else.
    It is lame to frame the extended warranty question as one of preference, when it is simply a money question. If a person lives paycheck to paycheck and has no savings to cover repairs an extended warranty offers a solution: extra cost overall but no outlier events.

    In the case of this Prius extended warranty one can argue that all a person has to do is save their monthly premiums and they will come out ahead, but some consumers fritter away the premiums instead, so they rightly say that the money was better directed towards a warranty. This does not make an extended warranty a good money move, it just lets people hedge their own poor financial behavior. And stay poor.
     
  9. vinnie97

    vinnie97 Whatever Works

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    This is ignoring real threats like inflation. I believe the prices are re-established every September, which is a good reason to perhaps get it within the next 4-5 months.
     
  10. draheim

    draheim Member

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    Please tell me where you found an account that reliably returns 7% interest. I didn't call Edward Jones directly, but all the money market and CD accounts I have found are around 1% or less (Bankrate.com). It's been that way for at least 2 or 3 years.
     
  11. SageBrush

    SageBrush Senior Member

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    ^^ Draheim,
    Do you have debt you pay interest on ?
    Say car financing, home mortgage, credit card debt ?
    These are obvious places to gain ~ 7% interest (and sometimes a lot more) for a lot of consumers. You just have to realize that paying down principal on a loan is equivalent to putting money into a savings vehicle if the interest rates are the same. You do have to consider liquidity when you pay down a loan, but that is pretty easily handled by having one credit card for purchases and a separate card only used for emergency cash advances for those people with no other access to liquid funds or credit. The two credit card solution gives you a credit line at ~ purchase apr rather than cash advance apr. This only works if you have not utilized your entire credit line. Another approach is to pay down installment loans that then give you an option of skipping payments if you ahead. Car payments work that way usually.

    I have some cash that earns 3% apr in a checking account at danversbank.com. The apr was 4% until recently.
     
  12. draheim

    draheim Member

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    I don't have (and never have had) any credit card debt, I bought my Prius @ 0.0% APR, zero down payment. We do have a mortgage but haven't done much toward paying down the principal mainly because both parties need to agree to do this to make it work.

    My checking account earns me 0.01% - ridiculous. I have looked around and found nothing signficantly better. CDs are 1.25% or less, and you have to lock your money up for a year or more. Money markets are even worse. So the difference isn't really even worth the effort.

    I'll be looking into danversbank though (have never heard of it). Thanks.

    EDIT:
    Just looked into Danvers Bank. Here's the footnote for the 3% "Rewards" rate:

    3.01% Annual Percentage Yield (APY) paid on daily balances up to $25,000, and 0.25% APY paid on all amounts above $25,000 each statement cycle the minimum requirements are met. All balances will earn between 3.01% APY and 0.25% APY as long as the qualifications are met each statement cycle. To qualify for the Rewards Rate, account holders must complete the following each statement cycle: perform at least 12 debit card transactions (excluding ATMs), receive a monthly statement electronically, access online banking at least once, and receive a recurring ACH or direct deposit. Available on personal accounts only. If you do not meet the requirements per statement cycle, you will earn an APY of 0.25%, your account will still function as a Free Checking account, however, it will not receive ATM refunds for that time period. ATM refunds apply to non-DBK ATM Fees and other non-proprietary ATM surcharges. There is a fee for the Occasional Overdraft Privilege Service (OOPS) associated with this account.

    Seems like a lot of hoops to jump through to get 3% interest, I probably earn more just using my Discover Card every chance I get...
     
  13. twittel

    twittel Senior Member

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    I think his 7 percent number reflects a stocks/bonds portfolio that may have a partially fixed income segment. Of course, his percentages may also have reflected expenses/fees, as the market is tracking higher than 7 percent.

    But I think his broader point is that he does not see value in buying an extended contract rather than his specific market return.
     
  14. SageBrush

    SageBrush Senior Member

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    Exactly right.

    What you call 'a lot of hoops,' we call trivial <shrug>
    My wife buys the lion's share of our expenses, and is just used to using the Danver's card for purchases under $5. She usually ends up putting about $50 a month on the card which is equal to 50 cents of lost rewards on another credit card like Discover. So no, your alternate card use comes no where near the returns from interest. I currently have 25k in the checking account which returns $62.5 a month in interest.

    $60 a month may not sound like a lot to you, but in our case it is one of multiple smallish savings we take advantage of for a nice total monthly savings. These 'little' things add up.
     
  15. SageBrush

    SageBrush Senior Member

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    You lead a complicated life ;)

    Next time take the cash, it is a better deal. Current market interest rates for good credit customers is 2.99% at Penfed.org --- open to anybody with a nominal fee of $15 to join.
     
  16. draheim

    draheim Member

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    No dispute there. Were it up to me alone the mortgage might be almost paid off by now. But that's now how things work is it? :(

    Not sure I follow this. Basically Toyota is selling me a car in monthly installments at zero interest with zero down payment. Rather than tying up all my cash in the car up front, I'm letting them absorb this cost and any lost value due to inflation. What am I missing here?
     
  17. SageBrush

    SageBrush Senior Member

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    When I have looked this past year, Toyota has offered either a zero apr for 36 months or a cash back. The cash-back varies by market but has been $1000 - $1500.

    You can put numbers in a financial calculator, or go with my estimate: you save about half of the alternate interest rate times 3 years times the original loan cost. On a 20k loan this works out to $900 in saved interest if the PenFed rate is the alternative. The inflation argument is not relevant because you are substituting another fixed loan in its place. You also now have $1000 - $1500 cash you get to invest/save interest for the next 3 years. That is worth e.g. $736 if you invest $1500 at 5% apr.

    Did Toyota or the dealer charge you for the financing with admin fees ?
     
  18. draheim

    draheim Member

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    I got the car a little more than a year ago, the only choice was zero APR for 36 months (or 1% for 48 months etc. I think) - there was no cash-back option. They also didn't offer the 2-year Toyota Care that has since become standard on all new models, I believe.

    I'm sure your math works out but that deal was not available at the time of purchase.

    I don't believe there were any admin fees, but this was my first new car purchase ever so they may have snuck some things in there. Water under the bridge @ this point.
     
  19. SageBrush

    SageBrush Senior Member

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    Or you were unaware. Just something to know about for the future.
     
  20. vinnie97

    vinnie97 Whatever Works

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    I was bent over with a 4.05% APR (the following month, April 2011, they opened up the 0% APR to the Prius, sigh). Oh well, one of the many reasons I'm a peasant.