Buy an Extended Warranty for a Car

Extended warranties can be expensive, making the cost of the car even more than originally envisaged. You have to decide if it is worth the extra expense for the peace of mind offered. Before you do that you should find out as much as you can about the deal you are being offered, what is covers, what is doesn't and who underwrites the warranty. Take your time to make an informed decision and don't be rushed into anything.

Steps

Understanding Your Options

  1. Know if you need to buy an extended warranty. The first thing to get clear is whether or not you have to buy an extended warranty or, as it is sometimes known, service contract. Generally you will not be required to buy an extended warranty, it will be an optional extra. If the car dealer tells you that you need to buy an extended warranty in order to qualify for financing, you shouldn't take their word for it. Contact the lender yourself and ask if this is true.[1]
    • If you buy an extended warranty and then discover that your lender didn't require you to, it can be difficult to cancel and you may not get any money back.
  2. Find out if you are duplicating the car maker's warranty. New cars will come with a warranty from the manufacturer that will typically cover you for the first three years, or around 36,000 miles. One of the factors to consider when thinking about an extended warranty is whether you plan to keep the car much beyond the period covered by the manufacturer.[1]
    • Different manufacturers offer different warranties. Used car warranties will also be different from new car warranties.
    • Be sure to check the documents on the extended warranty to make sure you are not paying for coverage when your manufacturer's warranty is still valid.
    • Normally the extended warranty will not come into effect until the manufacturer's warranty expires, but be sure to check.
  3. Shop around thoroughly. You don't have to buy an extended warranty where you bought the car. Since there is so much money made from these plans, you should expect very eager sales staff encouraging you to opt for the extended warranty. Don't be rushed into a decision. Shop around before making any decisions. You can search online for comparisons of warranty providers.[2]
    • Generally you can purchase an extended warranty from the dealer, a warranty company or agent, an insurance company, a credit union, or a broker.[3]
    • You can buy an extended warranty at any point after you have bought the car. You may, however, find that as the car gets appreciably older the rates will go up.
    • Be prepared to haggle about the price with the sales staff. It might feel unusual but there is evidence that those who haggle can on average to save a few hundred dollars.[4]
  4. Research the variety of providers. When you are shopping around you should keep it in mind that there are a vast number of potential suppliers for extended warranties on cars. This open market place has its advantages and disadvantages. The advantages includes a wide variety of providers with numerous deals and offers available to you, but the sheer number of warranty providers can make it hard to see the wood for the trees and find the best deal for you. For example, you might find a better deal with your main car insurance provider rather than the car dealership.
    • It can be especially difficult to determine the trustworthiness of an online company and navigate your way through the small print and conditions.
    • Be sure to thoroughly research any company you are considering and check whether they are backed by an insurance firm with your local insurance commission.
    • Check the company with your local consumer protection agency to see if there have been complaints made in the past, and how they were resolved.[1]
    • It is worth noting that extended warranties which are backed by the car manufacturer are generally rated the best.[4]
    • The minimum requirements for extended warranties will vary by state, but the policy should be available for you to read in a clear and accessible document, with full contact details for the provider.
    • It should clearly and conspicuously state any deductibles and prior approval procedures for repairs.[5]
  5. Be wary of potential scams. If you are searching for extended warranty deals you may find yourself more susceptible to cold callers or mailings that seem to be offering you an attractive deal. These markets are often subject to dubious practices so it's important to stay vigilant and skeptical. Don't take the information in phone calls or mailings at face value. If they say your warranty is about to expire, check this yourself, it's a sale technique.
    • Be on the look out for phrases such as "Final Warranty Notice" or "Notice of Interruption" which are designed to make the situation appear urgent and rush you into a deal.
    • Never disclose any personal or financial information unless you are completely certain who you are dealing with. This includes your driving licence number.
    • Always request time to think over any deal. Reputable providers should not try to push you into something.[1]

Understanding What the Warranty Offers

  1. Be clear on what is covered. If you do decide to look at buying an extended warranty, you need to carefully appraise the contract you are being offered. This means reading it thoroughly and methodically. It is very rare for a warranty to cover all the possible repairs you could require. Typically some parts are covered and others aren't. As a rule of thumb you should assume that if a part isn't explicitly described as covered in the contract, it probably isn't. Repairs for parts such as the brakes and clutch, are often not included in service contracts.[1]
    • Most warranties cover working parts, not repairs of dings and scratches (cosmetic repairs). Also, normal wear and tear is not normally covered.
    • There are all sorts of clauses which could reduce your coverage. For example, if a covered part has become damaged by a part that is not covered, you may not be able to claim for the repair.
    • A common so-called "escape clause" is one which covers "internally lubricated parts", but only if all the seals and gaskets are intact and in place. For example, if a transmission seal worth a few dollars leaks and the transmission becomes damaged before you have noticed the faulty seal, the provider may refuse to pay for your expensive transmission repair.[6]
    • You may be covered for replacement parts, but not the labour. Depending on the problem, the labour could far outstrip the costs of replacing a part.[1]
  2. Understand your responsibilities. As part of the contract, you may be required to do certain things to keep the contract valid. For example, you may be obliged to carry out regular services beyond the normal legal requirements. This might include perform oil changes more regularly than is recommended by your auto manufacturer. If you don't realise this and fail to fulfill your responsibilities then you could void the contract, meaning you are not covered and you don't get the money back.
    • It may be stipulated in the contract that you only take the car to a specific dealer for maintenance. Check this and stick to it. Anything else would be an unauthorized service.[1]
    • To avoid this, be sure you know what you have to do and keep full and complete records of the actions you have taken. Keep hold of all the receipts from services and any maintenance work.
  3. Determine how claims are handled. Before you agree to anything you need to understand how claims are handled. This means being clear on where you can take the car if you need a repair and how the repair is processed. It's important to know who pays for the repair in the first instance. Does the warranty provider pay up-front, or will you have to pay and then get reimbursed afterwards?[7] If this is the case, it could cause a significant strain on your finances in the short-term.
    • Part of understanding how claims are handled is knowing the level of deductible or excess you will have to pay.
    • Be sure you check the deductible for any claim before signing up.
  4. Know who backs the warranty. Given the multiplicity of financial service firms and the often complicated structure of businesses which operate by buying and selling things like debt and insurance contracts, it's important to know precisely which company stands behind your warranty. Dealerships sometimes offer warranties that are backed by third parties, not the car manufacturer.
    • A manufacturer-backed warranty can be used at any dealership, whereas a third party one may be limited to where you bought the car from.[7]
    • These kind of dealer-limited deals are sometimes known as "Captured Warranties".
    • Generally, warranties that are backed by the manufacturer themselves receive the highest customer satisfaction ratings.[4]
    • It is certainly not unheard of for companies that underwrite these kind of warranties to run into financial trouble and go bankrupt.[8]

Evaluating the Benefits for New and Used Cars

  1. Ask yourself how long you will keep the car. The potential advantages and disadvantages for buying an extended warranty begin with whether or not you intend to keep the car for many years. Think about this carefully and ask how often you tend to trade-in your car. If you are buying a used car to tide you over, an extended warranty may not be a good choice. However, if you tend to run a car into the ground over many years, it may be more advisable.[7]
  2. Consider your service and repair history. As well as thinking about how long you envisage keeping the car, you should think about your driving history. Do you have an unfortunate habit of driving into parked cars, clipping curbs or scratching the bodywork? If so, and you have found yourself shelling out for repairs in the past, it might be a good idea to get a warranty.
    • Also consider the standard of your local roads which will affect the wear and tear the car suffers.
    • You can try to add up the amount you have spent on repairs in the previous years and compare it to the cost of the extended warranty. It's a different car of course, but it will give you an idea of how much you have spent in the past.[7]
  3. Research the reliability of the car model. After looking at your history with repairs, be sure to check the make and model of the car you are going to buy. You can look up reliability facts and statistics online to give you a picture of how your car generally performs over time. This is not an exact science, but it does give you some useful data to inform your decision.[7]
    • You can read up on online car forums as well as specialist magazines to find out about particular models.
    • All of this information should be reflected in the rate you are quoted, but it is a good idea to be fully informed.

Tips

  • Check your local legislation; you are probably better covered by consumer protection laws for many car problems than you realize.
  • There are two kinds of extended warranties. The most common is an inclusive policy, which only covers things that are specifically included in the policy details. A better policy is an exclusive policy, which covers everything except what is specifically excluded in the policy. Exclusive policies are considerably more expensive than inclusive policies.
  • Don't believe what the sales or finance departments tell you; ask them to show you the confirmation in writing on the contract for verification.
  • Be aware that an extended warranty is not a warranty in the factory sense of the word. It is a third party payer plan, sold by someone else. (Even if the third party is a division of the auto manufacturer.)

Warnings

  • Read your contract all the way through; you will be sorry if you don't.
  • You may have to pay upfront for repairs and a claim may be deemed ineligible if you take your car to an authorised place for repairs or servicing.

Related Articles

Sources and Citations

  1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 http://www.consumer.ftc.gov/articles/0054-auto-service-contracts-and-warranties
  2. ↑ http://www.consumeraffairs.com/auto_warranty/
  3. ↑ http://www.consumerautomotiveresearch.com/wheretobuy.htm
  4. ↑ 4.0 4.1 4.2 http://www.consumerreports.org/cro/magazine/2014/04/extended-warranties-for-cars-are-an-expensive-game/index.htm
  5. ↑ http://www.maine.gov/pfr/insurance/faq/Service_Contracts.html
  6. ↑ http://doj.nh.gov/consumer/sourcebook/service-contracts.htm
  7. ↑ 7.0 7.1 7.2 7.3 7.4 http://www.edmunds.com/auto-warranty/five-questions-to-ask-before-you-say-yes-to-an-extended-warranty.html
  8. ↑ http://www.consumeraffairs.com/news04/2005/extended_warranty.html
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