What should I know about Extended Auto Warranties?
You may have the
opportunity to add extended warranty coverage to your car purchase either at
the time you purchase your vehicle or at a later time. You’ve probably heard
arguments on both sides on whether or not to purchase this extra coverage. Even
if you have researched the car you’re buying thoroughly, you never know what
lies “down the road” (if you’ll pardon the pun).
If you do have to pay for a major expense to get your car fixed, an extended warranty can certainly come in handy. On the other hand, adding a costly extra payment to your vehicle can be discouraging. You may have budgeted for a specific amount and reached an agreement on the highest amount you can afford to pay possibly. Then you discover that an extended warranty is going to add on an addition $50 or more per month during the 18-month period. Ask the dealer how much it will increase your payments upfront, rather than wait until you get to the end of the contract negotiations.
It’s best to find out what it is going to cost you, what it includes, and how long it is in effect before you move forward with the contract.
Tips to Take With You
Here are some tips to take with you when you buy your next car so that you can make an informed decision about your warranty coverage.
Extended Warranties are Sold after the Sale
It’s hard to figure at the extended warranty price as you’re shopping for a vehicle because these offers are normally presented at the end of the transaction rather than at the beginning. But, even though this is often the case, you can do something to make sure you understand before you buy!
You can take it with you
In the case of auto warranties, you can take it with you. You should ask the sales representative to let you take the information on the extended warranty home with you so that you can carefully read over the agreement before making a final decision. Read the fine print and conditions so that you’ll know what you agree to.
Salespeople often wait to present the extended warranty at the end of an agreement to catch you off guard because you have often already agreed to the other terms and conditions. They think people will agree to this on an impulse and they think of it as insurance in case something happens to their car.
They don’t think about all of the things the warranty does not cover and this is what you need to find out when you take the policy home. Doing your homework now can save you a lot of money and headaches later.
Don’t let the salesperson pressure you
With a purchase as large as a vehicle, you have the right to take your time with your decision. If the salesperson pressures you and says the warranty must be purchased right away, you should consider delaying your final decision until you have read everything in detail. It’s just not worth the headaches you will have to deal with later if you fail to take your time at the front end learning all you need to know about how it will work.
Some Great Advice
One way you can be a step ahead of the game is to be direct and take the first step regarding your warranty by asking the salesperson for information on the extended warranty long before you get to the final paperwork. If the sales representative understands that this aspect is important to you, they may be less likely to pressure you to purchase at the end of the deal.
Why Purchase an Auto Warranty?
You may wonder why even consider an auto warranty if it may not cover what you need it to cover? That’s the point. You do need an extended warranty in most cases. An extended warranty allows you to have things worked on should a part go bad that you thought was in good working order when you bought it. But warranties do not cover every part. They also have specifications or contingencies that must be adhered to in order to redeem your warranty.
A warranty is a type of insurance that most buyers don’t think they’ll ever use. This is why many buyers decide to forget purchasing an extended warranty completely. But is this the best decision to make?
Car insurance is required, but warranties are not. So this is considered an extra type of insurance that many feel they don’t need. But, like insurance, you only need it when you have a problem with an auto part. When something does go bad, do you really have the $1000 or more it might take to replace the defective part?
Reasons for Purchasing an Extended Warranty
Below are some of the most popular reasons that people purchase an extended warranty. Think about whether any of these reasons apply to your situation.
- Helps cover the cost of unexpected repairs
- Avoids having to use your savings for car repairs
- Helps you maintain and keep up the value of your vehicle
The main reason people purchase extended warranties for their cars is for peace of mind. Like insurance, you can consider how much of a gamble you wish to take when you are purchasing a warranty. Consider whether you think a new or slightly used vehicle is likely to need a $1,000 repair job over the next 18 months. If you think the risk is low, you can forgo the warranty or get a smaller warranty.
Intelligence is the Key
We’re not talking about being smart, here. We’re talking about “intelligence” as in information. If you have a keen knack to research and you find out the entire history of a car, talk to the dealer, and even the previous owner, you can gather the intelligence you need to make an educated decision. If you find out the motor is good, but the alternator is a potential problem, you may want the extended warranty because the chance of the alternator needing a replacement over the next year is good.
It is a gamble when you purchase an extended warranty because you are putting down your money in case something significant goes wrong with your vehicle past the time that your normal warranty is in effect. Find out when the normal warranty expires first, then estimate the risk and assess how likely it is that you will need to have a significant repair done within the period covered by the warranty.
If you are purchasing an older car, chances are the extended warranty is not going to cover as many things as the warranty you are buying for a newer model car. But there are exceptions. If you purchase a sports model, for example, the likelihood of having something go wrong may be more significant since these cars are often more delicate or prone to malfunction. As a general rule, the more complicated a vehicle is, the more likely it is that it will have something go wrong. Keep this rule in mind when shopping for a car and considering whether you want to lay down your money for an extended warranty.
How to Find Information About Your New Car
If you are wondering how you can find out more about your vehicle, there are many places you can go to find this information.
- Kelly Bluebook
- National Vehicle Registry
- Auto DNA
These are some of the best sources to go to online to find out about a VIN that you are considering purchasing. There are other ways to get this information, though. If you are good at accessing public records or you know the car was produced or sold in your immediate area, you can find the information using simple OSINT (open source intelligence) techniques such as court documents, vehicle registration information, and collision history, all of which are available in the public record through the Freedom of Information Act.
How to Reduce Your Risk
Even if you think the chance is low that your new car will have repair issues within the next year and a half or so, you may still want to invest in an extended warranty. Like a computer, machine, or any product that is based on mechanical working parts, these parts can go bad from time to time.
They will eventually break down, wear out, or need replacing and it is up to you, the owner, to take care of your vehicle. This is not only a responsibility you have to yourself and your family to make sure your vehicle is maintained and taken care of, but also a responsibility to other drivers.
If you let something go that is in need of repair, it could cause an accident or mishap involving other drivers. In some cases, you could be held liable for the damages if you knew it was a hazard but you did not get it fixed.
The main reason people do not get repairs done that need servicing is the cost. Even for people who have an emergency fund, finding the extra money needed to get the repairs done may be difficult.
Best Predictor of the Future
You may have heard the phrase, “The best predictor of the future is the present.” No matter how good of a car you get driving it off the lot, how you maintain and take care of your vehicle over the long term is the best indicator of future problems or mechanical failures than any other factor.
People put too much stock in where their vehicle was manufactured, the make and model, and how new it is. Certainly, these factors can affect the quality of the vehicle you get. But more important is the way the car is cared for after the sale.
Additionally, people who hold an extended warranty for a vehicle they have purchased increases the likelihood that they will get the necessary repairs done so that their vehicle is safe on the road and needs fewer repairs later on.
When do you pay for repairs under an extended warranty?
This will depend on the stipulations and regulations of the extended warranty that you sign up for. Some warranties require you to authorize a repair with your credit card ahead of time and apply for reimbursement later. Others do not require any money upfront at all. You just call in the number and information about your warranty and the company will pay for everything after showing your proof of warranty.
Is there a deductible?
Some warranties have a deductible that you must meet first. Like insurance, if your policy has a deductible, this means that you must pay in a certain amount (the amount of your deductible) before being able to use your warranty. Once the deductible is met, you will be able to cash in on your extended warranty which will pay the rest of your bill for repairs.
Regarding replacement parts, it is important that you are aware of the policy on your warranty agreement. Some allow you to get new parts and some may only source the parts from a wrecker service. If your warranty says this, you cannot get new parts. Your parts will only be obtained from wreckers, meaning that some parts may not be in as good of condition and this can lead to further repairs later.
Does your extended warranty have restrictions on how much you can apply the warranty? For example, many warranties do not allow you to utilize the same warranty for the same part more than once. This can be a “Catch 22” situation for many people when they have to settle for second-hand parts and then it tears up again. What is the use of a warranty under these conditions?
Does a warranty have cash value?
A warranty does not hold any cash value other than the value that is included when having repairs done under the warranty. In other words, you cannot make any money from it, unlike some insurance policies such as Universal Life, which allow you to get cash out of your policy if you need it.
Warranties work by agreeing to take on the expense of the repairs rather than you having to pay for them yourself. But again, warranties do not cover everything. Read the fine print before signing!
Questions to ask a dealer
Most dealers are fairly honest in most cases. They just leave out information they don’t want you to know. For example, they may not tell you that the car has been in a flood or that it has minor hail damage. You may be able to see hail damage if it is severe, but you may not notice it if it has had body work or a paint job done before being placed on the lot.
You can find all of this information out on your own by applied research techniques. You don’t have to have a college degree to do the right research. Sometimes, you can even find information on the VIN number by typing in the number online and looking at the results you get.
But, to have an idea of what kind of vehicle you are getting and the level of risk you may be dealing with, ask the following questions when talking to a dealer about a vehicle.
- Has the vehicle ever been in an accident?
- Has it been in a flood or fire?
- Has the car been stolen or vandalized?
- What is the condition of the important mechanical parts?
- What is the repair history of the vehicle?
To make sure you’re being thorough, you could also ask whether the car has been maintained properly by the previous owner. All of this information is found in the CarFax report or on Kelley Blue Book, but it’s good to hear it from the dealer, as well.
If the dealer is honest, they will tell you the answers to your concerns and questions. If they are not, you do not want to deal with them anyway. This may be a good test on whether you want to continue with the contract or take your business elsewhere.
Some Final Advice
When offered an extended warranty, don’t feel pressured. Do your homework, take it home and look at the fine print. Then come back the next day with your answer. It doesn’t hurt any to make the salesperson sweat a little. Their goal is to close the deal. But you should only feel comfortable doing so when you are thoroughly familiar with what you are getting on both the vehicle and the warranties.