There are 3 different coolant temp sensors.
1. The sensor that controls the temp needle in the instrument cluster is located on the front of the engine right above the oil cooler. It should have one yellow wire with a green stripe on it. This sensor or the wiring is causing your problem. It's hard to see if you don't know where it is.
2. The TW sensor is located near the thermostat housing(where the upper radiator hose connects to the engine.) It adjusts the fuel mixture according to the coolant temp. This is the one that causes the engine rpm's to bounce up and down when the coolant gets a little low. This one is easy too find.
3. The radiator coolant temp sensor is located on the bottom of the radiator. You have to remove the splash shield to see it from the bottom. It controls the operation of the radiator cooling fan according to coolant temp.
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if all checks out and it was just a bad sensor, can i depend on this car to be solid, and not a total money pit? I'm concerned with all that i've read about the head gaskets. What's your advice?
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There is no way to tell how the car was treated before you bought it. Get the temp gauge working properly and go from there.
The cooling system is critical on your Legend, it must be monitored closely and maintained. It is not forgiving.
I bought my 92 with 160K, at 217K the headgaskets failed. I repaired it and it drove great when I sold it at 265K.
I bought my 94 with 110K and it has had no problems with the cooling system other than a swolen upper radiator hose. It's at 175K now. I try to check the coolant level weekly.