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Old 16.11.2020, 00:18
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extended warranty when buying used car

There are already some discussions on this forum about whether the used car warranties such as Quality1 are worth the money. Many people concluded they are not worthwhile.


The calculation people are making is based on only one perceived risk, the risk of something failing randomly. In a long enough period of time, something will fail in every car.



There is a second risk to consider: Akerlof's Lemons (yes, there is a paper on this) the risk of a failure that is not random, in other words, the seller knows something might be wrong and this was one reason they got rid of that car. If it is a dealer, he might not know about the defect but the person who traded in the car might know there was an intermittent fault and the dealer never noticed it because it doesn't appear every day.


If you have one of these not-random failures, I feel that you will probably find out in the first 12 months. So it may be wise to buy the extended warranty but only for 12 months. I don't know if the warranties renew automatically like everything else in Switzerland but if the car is running well after 12 months and you've had it serviced a couple of times and no defects were found then you revert to the original logic that warranties rarely pay out more than you put in. But in the first 12 months it is serving that other purpose, a safety net against the seller hiding something.
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