At the time of purchase, or within a certain time after the purchase, you can buy a service contract or extended warranty for your new car. In effect, this is an insurance policy covering repairs and perhaps some routine maintenance not covered by the standard new car warranty. Extended warranties are offered by the new car manufacturers as extra cost items. Service contracts are offered by independent companies who specialize in this sort of coverage. Both are available through new car dealers.

Calculate the odds.
On the surface, a service contract or extended warranty may seem like a good investment, but investigate further. The standard new car warranty already covers the parts most likely to need repair or replacement and may cover them for longer than you are probably going to keep the car. Some new car warranties are so comprehensive these days that a service contract or extended warranty is superfluous if you are keeping your car only two or three years. Service contracts and extended warranties vary in cost from company to company and may be available for different lengths of time. Is anything likely to go wrong with your car (not already covered by the warranty) that will cost more than the service contract or extended warranty?

The seller of the service contract or extended warranty is willing to gamble that your car will not require service costing more than you pay for the added coverage. They know the odds better than you and have set the prices expecting to make some profit. So, on average--assuming the sellers know their business--the buyers of these service contracts or extended warranties do not get their moneysworth.

It might make sense if...
There are, however, a couple of reasons you might want to go ahead and get a service contract or extended warranty.

• First, you may be the type of person who wants the peace of mind extended coverage will provide. There are people who believe in insurance in general and people who don't.
  
• Second, you may be buying a car that is more likely than average to give trouble. This is a tough call, but some cars are more reliable than others. You may have your heart set on a make or model that has an uncertain quality level. Perhaps you are buying a new model with no track record in regard to reliability that may be prone to defects in early manufacture. Or, you may be buying a car with equipment such as a turbo-charger that is unusually likely to be troublesome and hideously expensive to repair. Buying a service contract or extended warranty can give you the courage you need to get the car you want under these circumstances.