How to Buy an Extended Warranty for a Car

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HomeArticlesCommunityMy Profile WH.translationData = {};WH.mergeLang({'navlist_collapse': '- collapse','navlist_expand': '+ expand'});EditHome » Categories » Finance and Business » Managing Your Money » Buying WiselyHow to Buy an Extended Warranty for a CarEdited by Jack Herrick, Wpendy, Peter Johnson, Ben Rubenstein and 19 others

Pin ItArticle EditDiscussExtended warranties can be expensive, making the cost of the car even more than originally envisaged. And that cost will expand, depending on what is covered and the length of coverage. If you do decide to buy one, don't let the dealer sell you the wrong one––be ready and know your rights and needs when purchasing any extended warranty.

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Do You Even Need an Extended Warranty?1Don't put the cart before the horse. The first step in this process is to decide whether or not buying an extended warranty is right for you. To do that, consider the following:It's probably not covered. Most people lose money on extended warranties. On average, less than 2% of the money collected by the seller of an extended warranty is likely to paid out in claims. These plans are so profitable that the plan sponsor usually pays a commission of up to 50% of the selling price of the plan back to the selling dealer. In fact, the dealer will probably make more money off the sale of an extended warranty than will be made from the sale of the car itself.2Assess how likely it is that your car will break in the near future. This can be a complex question. If the vehicle is new, if you take care to follow the maintenance schedule; and if you don't abuse the vehicle (like letting a teenager drive it), then it is unlikely that your vehicle will break in a time frame and fashion that would be covered by an extended warranty.Manufacturer's defects (that are likely to fail early) will be covered by the manufacturer's warranty. These plans are written to protect the plan provider, not you. If you take care of the car, and it didn't break during the warranty, it is not likely to break later.A used car in another matter entirely. Unless you know how well the car was taken care of, you may want to consider purchasing a plan. Even here though, be careful. If the car can be replaced for $x dollars, just how much can you afford to spend on insuring that loss. As a rule of thumb, never exceed 10 percent of the purchase price when buying a plan.3Read the contract! It is shocking how much is not covered. For example, your brakes start making noise, the front pads are worn out and have destroyed the steel brake rotors and the repair cost more than $300. Guess what... not covered. Brakes are considered maintenance. Another example: Your car dies on the road, and is towed in (which may or may not be covered). The shop finds out the plug wires, plugs. etc. need replacement––again, not covered.Who decides if it is covered? The short answer here is that the company decides. But what happens if you don't agree? For example, a coolant hose blows out on the highway and it isn't safe for you to stop. You continue to drive to the next exit where you can safely stop. Because you didn't stop right away, the engine has been damaged. This type failure would normally be covered but because you didn't stop right away, the company declines the claim. Now what? You need to know all this before you buy the plan.What else is covered? Does the plan cover towing and if so, what are the distance limitations? Can you tow the car to the facility of your choice or simply to the closest? If you break down out of town, is lodging covered, how much, how long, etc? If your car is laid up for a while, how about a rental car, and what about a cash advance if you are really stuck? Look for the answers in the fine print.4Be aware when extended warranties are not considered to be insurance. In some states, provinces and counties, these extended warranty plans are not considered insurance policies and, as such, are not subject to the insurance regulations that a life or health insurance company must obey. In those states where the "plan" is not insurance, extended warranties fall under the same regulations that other warranties do. Check with your local authorities for more information.

Don't Decide Under Pressure1Avoid signing on the day of purchase. You don't have to decide today, so don't be pressured to make a decision today. The sales team may tell you the plan is only available on "new" cars and therefore a purchase decision must be made today! Malarkey! Don't believe it. In fact, you may want to delay buying any warranty until the vehicle's factory warranty is almost over, to avoid plan overlap with your extended warranty. Further, you may want to assess whether the cost of an extended warranty makes sense: It is often the case that the repairs that are covered by the extended warranty––if they actually occur during the warranty period––are less than the premium of the warranty itself. You may choose to pay for any repair costs out of your own pocket, and put the money you would have paid for an extended warranty premium in a bank account, as the interest you accumulate from the bank account may likely help pay for the costs of your out-of-pocket repairs in the future, all without setting you back financially.2Shop around. You don't have to buy an extended warranty where you bought the car. Since there is so much money made from these plans, the sales staff may be inclined to say anything to induce you to make a purchase decision today. Don't fall for that. A quick Internet search will return literally hundreds of companies that sponsor plans that can be purchased nearly any time. On the other hand, buying a plan when you buy the car may allow you to finance the price of the plan into the vehicle purchase. This option may not be available if you delay purchase. Before making a decision here, talk with your bank or credit union. They may be able to hold back a sum sufficient to make an outside extended warranty purchase.How about a free extended warranty? There are several companies who manufacture automotive chemicals (BG products and Wynn's are two that come to mind) and offer free extended warranties when you perform the factory required maintenance using their products. Why pay for what you can get free?

Reading the Fine Print of an Extended Warranty1Find out if the warranty provider pays for an initial diagnosis. Cars today are easy to fix––they just are hard to diagnosis. Make sure your plan pays diagnosis.One example of a customer missing out:[1] A customer who had an extended warranty came into a car repair shop with a complaint of intermittent operation of the speedometer. Since the problem was not always present, the diagnostic procedure ran into several hundreds of dollars. After the dash had been pulled, the repair shop discovered a faulty connector to the instrument panel. The replacement connector cost $42.50 and the diagnosis was $300. Since this customer's plan did not pay for diagnosis and had a $50 dollar deductible, the customer collected nothing!2Find out if the warranty will pay market rates on any claim. When a claim is submitted, the claims adjuster decides how much the company is willing to pay the shop for a covered repair. This may seem like it is good for the consumer, but it is not. The adjuster cares only for how much the company has to pay. Squeezing the service provider is not a good thing. Only the warranty company benefits, both the customer and the shop lose! For example:Shop: The car needs a new widget and it cost $159.Adjuster: I can buy that part from a dealer is Mississippi for $112, the most I can pay is $112, period.Shop: But this is Los Angeles, things cost more!Adjuster: Too bad, that's what we are willing to pay, take or leave it.Shop: Fine, I'll take it, the customer will pay the difference! (Or, the shop might just use a lower quality part)3Check the deductible. When buying car insurance, there can be a significant saving in premium with a higher deductible. Extended warranty plans frequently do not offer the same benefit. For example, if you have a plan with a $50 deductible that costs $1500, you would expect that a plan with a deductible with a $100 deductible should cost $750, but often this is not the case. Don't be surprised to find the $100 deductible plan cost $1100.4Ask whether the warranty offered is a "Captured Warranty." A captured warranty is typically a plan that is sponsored by the vehicle manufacturer or by a company that has a special pricing arraignment with the vehicle seller. With a captured plan, it can be difficult, if not impossible, to use your plan with the service provider of your choice. If your dealer can't get your car in for a week, too bad. A capture plan is bad for you. If you get poor service from your dealer and you have a captured plan, too bad, you can't change providers. Captured plans are good for the company, not for you. Choose only a plan that allows you to go anywhere to get your car fixed. You'll be glad you did.

Edit TipsThere 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 an third party payer plan, sold by someone else. (Even if the third party is a division of the auto manufacturer.)Check your local legislation; you are probably better covered by consumer protection laws for many car problems than you realize.

Edit WarningsAll sales people will say your contract is covered anywhere. This is two-fold; most dealerships will honor the contract, however some will make you pay up front for repairs and collect from your warranty company. This can be a nightmare if the authorizations are not properly obtained.Read your contract all the way through; you will be sorry if you don't.

Edit Related wikiHowsHow to Buy a Car Without Proof of IncomeHow to Choose an Extended Auto WarrantyHow to Spend Your Money WiselyHow to Shop ProperlyHow to Budget Your MoneyHow to Bargain Shop

Edit Sources and Citationshttp://www.all-about-car-selection.com/extended-car-warranty.html – research sourcehttp://www.paragonmotorclub.com/warranty/ – research sourceArticle Info Featured Article

Categories: Featured Articles | Buying Wisely

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