Dave Ramsey on Extended Car Warranties: What He Gets Right and Wrong

Dave Ramsey’s story is an inspirational one. After gaining wealth at a young age, he lost everything, fought debt, and, against all odds, came back stronger. For decades, he’s been helping millions of people find financial freedom.

His stance on extended warranties is simple: They’re a waste of money; don’t buy one.

His arguments are reasonable. Dealerships put insane markups on vehicle service contracts (the technically correct term for extended warranties). The chances of using the warranty can be pretty low. And no, extended warranties don’t cover everything.

What Dave Ramsey’s argument lacks isn’t logic but nuance. Sometimes, the warranty does make sense. Sometimes, it’s not a total waste of money.

But before we get into discussing those nuances, let’s first break down Ramsey’s argument for why extended warranties are a no-go.

Does Dave Ramsey Say Extended Warranties Are Bad?

In a nutshell, yes. Dave Ramsey argues that extended warranties (and this goes for home, electronic, and car extended warranties) are “overpriced” and, statistically, not worth the money. In his own words, “I don’t recommend buying extended warranties, ever.”

These are the core arguments behind that statement.

Extended Warranties on New and Used Cars: It’s a No For Both

In an article published on its website, Ramsey Solutions mentions that most cars already come with a manufacturer’s warranty that will usually replace faulty parts for free within the set time or mileage term. The argument here is that you don’t need to buy an extended warranty at the time of the vehicle purchase because the factory warranty is still in effect.

Ramsey isn’t any more forgiving when it comes to extended coverage for used cars. In response to an inquiry published in The Oklahoman, he stated, “I especially dislike used car warranties.”

He goes on to say that “they’re bad because they’re expensive and—on average—of little benefit to the buyer.”

What Are the Odds of Using the Warranty, Really?

The odds of using them are low, and Ramsey argues that this is by design. Car dealers, according to the previously mentioned Ramsey Solutions article, will purposely sell buyers extended warranties that end before parts that are known to break down fail. In other words, the terms are carefully calculated based on what presents the lowest risk to the seller.

High Markups, Low Value

I’m sure you’re familiar with this one: You go into a dealership, buy a car, and ride the high of making an exciting purchase. At some point in the talks, when you’re tired and your mind is racing, the finance officer raises the subject of an extended warranty. They make the extra monthly payment seem like no big deal; maybe they mention that it can be rolled into the auto loan (another rip-off in Dave Ramsey’s book).

Part of Ramsey’s argument against extended warranties is tied to that sales pitch and the inflated price you’re given at the dealership. “Seventy-five percent of what you paid for that plan went straight into the dealership’s or salesman’s pocket as commission,” he told a listener named Laura.

The message boils down to this: Don’t buy an extended warranty because it’s really just a profit vehicle for the dealership. And considering that vehicle service contracts don’t cover everything car-related, buying one just makes an expensive purchase more expensive.

Dave Ramsey Car-Warranty Advice: What He Proposes Instead

We can break Dave Ramsey’s solution into two main strategies: self-insure, and save up to pay cash for a reliable used vehicle.

The Self-Insurance Solution

Ramsey suggests a simple alternative to purchasing an extended warranty, and that’s self-insurance. The premise is straightforward: Take the money you would spend on a warranty, and pay it into a savings account. If your car needs a repair, take money out of that fund to cover it. If nothing happens, then that money is still yours, and it compounds over time.

The goal is to eventually save up three to six months' worth of expenses.

Buy for Reliability

If you’ve been dreaming about owning a straight-from-the-factory Porsche Macan, then you might not like this next bit of Ramsey’s advice.

Instead of buying new cars and being saddled with a loan, Dave Ramsey suggests buying used cars and paying cash for them. And not just any used car, but a brand known for reliability.

The logic behind this is that auto loans are a barrier to a debt-free life, and the interest can add significantly to the amount you end up paying for the vehicle. Insurance premiums on new cars are also higher; plus, there’s the depreciation factor.

Paying cash for a used Lexus, Toyota, Honda, or other brand known for its reliability is the smarter move. For one, it eliminates the loan; for another, a lower risk of repairs and longer lifespan mean that you’re less likely to need to tap into your emergency fund.

Is Dave Ramsey Right About Warranties?

To some extent, yes, Dave Ramsey’s argument about warranties has merit. There are some things he’s wrong about—although “wrong” might not be the best word. Perhaps it would be better to say that his argument that extended car warranties are never worth buying is too generalized.

Consider a more nuanced take.

Extended Warranties for New and Used Vehicles: What Dave Ramsey Doesn’t Mention

For the sake of argument, let’s assume you bought a new car. That vehicle would’ve come with a manufacturer’s warranty consisting of a limited bumper-to-bumper warranty (comprehensive, exclusionary protection) and a limited powertrain warranty.

Although the powertrain warranty usually lasts longer than the bumper-to-bumper warranty, both are only active for a limited period. Once that protection lapses, that’s it. And if you’re following another piece of Ramsey’s advice, which is to avoid trading in your car every few years, then you’ll own that car for long enough that common breakdowns become more likely.

If the transmission goes and you’re saddled with a $7,000 repair, that would have to come out of your emergency fund. If the A/C compressor goes soon after, and then the accelerator pedal position sensor, followed by the motor mounts, the fund is going to be either depleted or close to empty very quickly.

And yes, a reliable model can mitigate these kinds of repairs, but a Toyota Highlander isn’t invincible. A transmission replacement can still come calling, even at 63,000 miles.

What 1,400+ Chaiz Contracts Can Tell You

Risk can be managed by the right coverage. Chaiz data shows that 73% of buyers choose Best coverage (the most comprehensive level of coverage) regardless of their income level. Additionally, the cancel rate among buyers who purchase add-on protection is 18%, compared to 27% among those who don’t.

That information isn’t enough to base a conclusive statement on, but it does suggest that there’s a discrepancy between Dave Ramsey’s advice and real buyer preferences.

The Mileage Difference

Buyer trends suggest that there’s less value in an extended warranty for vehicles under the 45,000-mile mark. Chaiz data reveals a 45% cancellation rate among drivers in that mileage range. Many cars are still under factory powertrain coverage at this point, so third-party protection may be counterintuitive.

There is a shift as the miles rack up. Manufacturer-backed extended warranties tend to be capped at 8 to 10 years or 125,000 miles. The exact terms will vary from manufacturer to manufacturer, but generally, coverage ends at the point when vehicle repairs become more likely and more expensive. After the 125,000-mile mark, third-party plan availability thins as well.

This both confirms and disputes Ramsey’s claims. While the age and mileage caps seemingly confirm the argument about the odds of using the warranty, plans for high-mileage vehicles are available from several providers.

Buying extended coverage on a relatively new, lower-mileage vehicle doesn’t make the most financial sense. On an older, higher-mileage vehicle, the trend shifts. Chaiz data shows that the 80,000–120,000-mile range is the sweet spot, with the lowest cancel rate on plans (28%), and 82–84% of buyers choosing comprehensive coverage.

Sidestepping the Dealer’s Commission

Dave Ramsey’s arguments about the high markup dealers place on extended warranties are sound. Dealers have been known to mark those contracts up by as much as 300%. What he doesn’t touch on is that the dealer isn’t the only option.

Specialized online dealers sell discounted manufacturer-backed plans in states where it’s allowed, and some dealers offer lower prices than others. Meanwhile, some third-party providers sell their contracts directly to buyers, meaning you don’t need to work through a dealer to purchase coverage.

The most affordable avenue is to buy through a digital marketplace like Chaiz, which eliminates the dealership commission, allowing you to save up to 60%. There’s no salesperson pushing you into a contract, no spam haunting your inbox, and no pressure to purchase.

Extended Warranty vs Dave Ramsey: When the Warranty Wins

Sometimes, the smarter move is to skip the warranty. If you recently bought a new car, for example, the factory bumper-to-bumper warranty will likely be active for at least 3 years/36,000 miles. The terms may vary depending on the manufacturer, but this is a common time and mileage limit.

Although some authorized dealers reward early purchases with lower plan costs, you don’t have to buy an extended manufacturer warranty immediately. You have until the bumper-to-bumper warranty lapses before you’re no longer eligible. And even then, you have the option of pursuing coverage from a third-party provider if you decide that an extended warranty will be the best move for you.

With that said, if you can afford to self-insure, drive a reliable model, or don’t plan on keeping the car for more than five years, then you may be better off skipping the warranty.

When the Extended Warranty Is Worth It

On the other hand, there are some occasions when the extended warranty wins:

• Known reliability issues: If you drive a Jeep or Land Rover, the chances of a breakdown are a lot higher than if you drive a Lexus or Hyundai.
• High-mileage vehicles: After the 125,000-mile mark, there are fewer plans available, but they can be more expensive. One reason for that is risk. Cars over 100,000 miles are more likely to need serious repairs, meaning you’re more likely to file a claim. That likelihood is what makes an extended warranty worth considering.
• You can’t afford to self-insure: Nobody really wants to pay $1,000+ a year for a protection product they may never use, but sometimes, that route is more feasible than paying for repairs out of pocket.
• Luxury and European vehicles: Everything about owning a luxury car is more expensive, including the repairs. Between the expensive parts and skilled labor required to carry out the work, the invoice can chew through your savings.

Self-Insuring vs Extended Warranty: Do the Math

Dave Ramsey argues that “if you can’t afford a $200 repair on a car, then you can’t afford the car.” The point being that if something goes wrong and you can’t afford to fix it, then you couldn’t afford the car in the first place.

The argument is fairly simplistic, and it doesn’t align with the average American’s reality. According to the Urban Institute, 49% of American families can’t afford the true cost of living. Gas prices have increased by 33% since January 2025, and the cost of homeownership has grown faster than middle-class incomes. To put it plainly, budgets are under strain across America.

If you can’t afford to build up a repair fund right now, then an extended warranty may at least keep your car on the road. It’s worth some thought if your livelihood depends on your car.

Do the math first. See what makes most sense for you and your budget. Here’s what to weigh up:

• Start by looking up the most common repairs for your vehicle make and model. Then check the average cost of those repairs.
• Compare that to what a vehicle service contract would cost you. On average, most contracts work out to $1,000 a year, but there’s a lot of variability. If you want a more definitive estimate, you can use the Chaiz comparison tool to help with your research.
• Look at the benefits, too. Towing, rental reimbursement, and trip interruption are often included. Compare that to what those expenses would cost you out of pocket.

Would you be able to save enough on your own to cover the most likely repairs? Would one breakdown wipe out your emergency fund? Think about it carefully.

Should You Follow Dave Ramsey on Warranties?

Dave Ramsey’s advice on warranties makes financial sense, but it shouldn’t be treated as a blanket rule. If you can save up enough money to buy a reliable used car in cash, as well as set money aside for repairs every month, then do it. It’s a smart strategy that allows you to drive debt-free.

If following that advice isn’t practical for your life and budget, then at least explore the option of an extended warranty. Evaluate providers carefully and understand what’s covered and what’s not. Also read the contract and coverage terms very carefully before signing anything.