How to determine how much warranty is enough

cross section of a car engine

Written by Centennial Credit

Jul 10, 2019

Whether you decide that you need a warranty or not, it’s beneficial to know how long your current warranty will last. If you do decide that a warranty is a good fit for you based on your current financial position, then you need to know how much warranty is appropriate.

There are two main factors when determining how much warranty you need: how many kilometers you drive per year and how long you plan to keep the car.

How many kilometers you drive

There are multiple ways you can figure out how many kilometers you drive in the run of a year. Basically, you are figuring out how many kilometers you drive over a certain time period and then multiplying by the number of time periods in a year.

The easiest way to do this is to simply reset the ‘trip’ meter in your current vehicle and drive as you normally would for one to two weeks.

After this, simply check the number of kilometers and multiply them by the number of the time periods you chose in a year.

For example, if your trip meter says that you drove 450 kilometers in one week, then we can calculate an annual total by multiplying 450 x 52 (weeks in a year) = 23,400kms.

Statistically, the average person drives around 24,000kms per year.

Alternatively, if you’ve owned your current vehicle since new, you can simply divide the number of kilometers on it now by how long you’ve owned it.

For example, if your car has 125,000kms on it and you’ve owned it for 5 years, then you drive on average 25,000kms per year (125,000/5=25,000).

How long you plan to own the vehicle

Drivers that keep warranty on their cars will typically do one of two things:

  1. They will purchase a warranty equal to the length of their lease/loan;
  2. They will purchase a warranty based on the length of time they plan to keep their vehicle.

Purchasing a warranty that matches your lease or loan term is very simple but effective. When you do this, you are protecting yourself for the length of time that you will be making a payment on your car.

While you may purchase a warranty that exceeds your finance term, the reason this is a great idea is because most people can afford one payment per month whether that’s for a repair or the payment on the vehicle itself, but generally not both at the same time.

With an active warranty while you’re still making payments on your vehicle you don’t have to worry about an unexpected repair disrupting your monthly budget. If you still own the vehicle after it’s paid off, then you will have extra disposable income that can be set aside or put towards unexpected repairs because you no longer have a payment on the vehicle itself.

Also, you may purchase a warranty for the length of time you plan to own the vehicle (even if you plan to trade the vehicle before it is completely paid off).

For example, let’s say that you finance a new car for 84 months (7 years) but only keep your vehicles an average of 60 months (5 years). You could purchase a warranty that will remain active only for those 5 years you plan to own the vehicle.

Warranties cannot be transferred between vehicles. That means that when you trade your vehicle, if it has a warranty on it, you would need to purchase a new warranty for the new vehicle and someone else would get the benefit of your current warranty.

By purchasing a warranty only for the length of time you plan to own the vehicle you keep your payments lower, get the coverage you need, and aren’t paying for someone else’s warranty (the next person who owns your car).

In our example above, purchasing a 5 year warranty when you have a 7 year finance term will protect you while you own your car and will be cheaper than purchasing a 7 year warranty.

Now that you know how warranties work, how they can protect your credit, and how much warranty is appropriate for your specific driving needs, you can feel confident the next time you’re faced with the decision to put warranty on your next car.

In the next and final installment of our warranty series we’ll discuss some common misconceptions about warranties.

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