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Tips on buying an
extended warranty
By Beth
O'Connell • Bankrate.com
After weeks of shopping for a car and
bargaining with several dealers, here is a good car for a good price.
The ordeal is over. It's time to sign the papers and drive away.
But then the dealer suggests a service contract or
an extended warranty, six years or 100,000 miles. That sounds like
a good idea, and it may be. But, first, consumer advocates say,
consider these points:
| Car dealers make a profit on
the extended warranty, sometimes as much as they make on the
car! Buyers can negotiate the price of the warranty just as
they did the car. The working assumption is that dealers pay
about 50 percent less than the asking price for the warranty.
A buyer should not pay more than two-thirds of the asking price. |
| It is not necessary to buy the extended warranty
right away. Buyers usually have 12 months after a new car purchase
to buy a warranty. Get the time limit from the company selling
it. |
| The warranty need not be purchased
from the dealer. Check a credit union or auto insurance dealer
for a warranty program, sometimes known as mechanical breakdown
insurance. Check out the service contract or car warranty companies. |
| Shop around for the best price and the best coverage.
If the warranty has a $100 deductible for each service or repair,
why bother? |
| Buyers can even shop different
dealerships by calling the finance managers at the other stores.
A buyer can tell the dealer who sold the car that he's going
to check with the competition to find the best price. |
| Don't buy a double warranty, which is coverage
for items already covered by the manufacturer's warranty. |
| If the car won't be in the
driveway for longer than the manufacturer's warranty, typically
three years or 36,000 miles, why bother? Beware of the sales
pitch that the service contract will help the resale value of
the car. A buyer has just paid three years for a service that
might never be used. |
| If buying the warranty from the dealer, make
sure it's the car manufacturer's warranty, which is to say a
Toyota warranty for a Camry, a Ford warranty for a Taurus. |
| The warranty begins the day
it is purchased, not on the date the car is purchased. So those
who buy it 11-and-a-half months after purchasing have a car
covered for seven years instead of six. |
| A used car's price sticker should clearly state
whether there is any initial dealer warranty. As for an extended
warranty, many companies won't sell one unless the used car
was bought from a dealer. |
| Never buy an extended warranty
when leasing a car. |
-- Posted: Feb. 10, 1999
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