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Extended warranties for used cars

Just snapped up a great used car and now you're thinking about purchasing an extended warranty?

Proceed with caution. Extended warranties are enormous moneymakers for auto dealers and anyone who sells them. One wrong move could cost you hundreds, even thousands of dollars.

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"I think you have to automatically assume a 100 percent markup," says Phil Reed, consumer advice editor at Edmunds.com.

Don't let anyone pressure you into signing on for an extended warranty before you're ready and you're sure you need one.

An extended warranty is actually an extended service contract, which covers the cost of certain repairs and problems after a car's factory warranty expires.

Check under the warranty hood
Before you consider an extended warranty, take a close look at your car's original warranty. How much coverage is left? One year? Two years? A thousand miles? Ten thousand miles?

Many auto manufacturers now offer warranties above and beyond the once standard three-year or 36,000 miles protection.

New cars from Acura, BMW, Cadillac, Volvo, Saab, Mercedes, Lincoln, Lexus and Jaguar are sold with four-year or 50,000-mile warranties. Cars from Infiniti have four-year or 60,000-mile warranties.

Kia and Hyundai offer five-year or 60,000-mile warranties on new vehicles, plus 10-year/100,000 miles powertrain warranties, which cover engine and transmission repairs.

Many but not all factory warranties get transferred to used-car buyers at the time of purchase. So be sure to check.

"Most transfer in some form. Not all transfer 100 percent," Reed says.

Did you pay a little extra and buy a used vehicle that's been certified by the auto manufacturer? If so, you picked up some additional warranty protection on your used car, truck or SUV.

In the past few years, several major manufacturers including Honda, Lincoln, Ford, Mercury, Volkswagen, Volvo and Audi have pumped up the warranty protections on certified vehicles.

Most luxury brands offer two years of additional warranty to certified used-car buyers. Other programs tack on an additional warranty, say, 12 months/12,000 miles, after the new-car warranty expires.

Once you determine just how much warranty is left on your used vehicle, you'll need to think about how long you plan on keeping the car.

Do you really need it?
Let's say you plan to sell the car in four years and you have one year left on the car's original warranty.

Do you shell out money for an extended service contract for those three years? Or do you stash the money in a savings account, opting to pay for any future repairs when and if they're needed?

"If you just save that money the odds are that you'll come out ahead," says John Nielsen, director of AAA's Approved Auto Repair Network.

But if you really hate surprise expenses and if the cost of replacing an electrical part or air conditioner or transmission would bust your monthly budget, an extended service contract might be right for you.

"There are a lot of people who don't like to deal with unexpected expenses," Reed says. "And they want to make sure everything fits in the monthly budget."

Another thing to consider is your car's reliability. On the one hand, cars are more reliable than ever. So car owners can expect fewer repairs. On the other hand, repair costs while infrequent could be quite high, thanks to the complex electronics and computer circuitry under the hood.

Try looking at an extended service contract as a bet. The customer is betting something big is going to go wrong with the car during the contract period. The company offering the contract is betting it won't.

The company often wins. For most people, the average repair claims against a $1,000 extended service contract come to about $150, according to Edmunds.com.

Manufacturer vs. aftermarket
There are two key types of extended warranties -- those backed by the car's manufacturer and those offered by independent companies, also known as aftermarket warranties.

An extended service contract backed by an auto manufacturer encompasses a wide range of repairs and services. The repairs can be done at any authorized dealership and tend to be approved without a hitch.

An extended warranty from an independent company could cost half as much as an extended service contract from a manufacturer. But the quality of this kind of contract varies widely from company to company. So shop carefully.

Not sure what to look for on an extended service contract? These tips from Bankrate.com can help.

Before selling you a service contract, some companies ask that the car be inspected by a mechanic. And some extended service contracts require used car owners to wait 30 days or 1,000 miles before filing repair claims.

And keep in mind the higher the mileage on your car, the tougher it will be to find a good extended service contract. Most extended warranties end when the odometer on a car reads 100,000 miles. Someone with a high-mileage used car might want to pass on a service contract altogether.

If you think you can get the money you invested in a service contract back when you sell the car -- think again.

Many extended warranty contracts cancel once you sell the car. Other contracts may be transferred over to the new car owner, but often for a fee.

Finding the best deal
To get a good deal on an extended service contract, you'll have to shop around.

Call three auto dealers and you're likely to get three very different prices for the same extended warranty contract.

"Consumers should really shop hard," Nielsen says. "There's a wide swing in prices."

Prices vary on aftermarket warranties as well. A good source for an aftermarket warranty is your local credit union.

With an aftermarket warranty, you may have to pay for the repair upfront and then wait to be reimbursed by the company, which could take weeks. Be sure to ask about the reimbursement process before signing on for an aftermarket warranty.

Some dealers may try to sell you a dealer warranty instead of a manufacturer's warranty. Often with a dealer warranty, all the repairs and services on the car have to be done at a single dealership, theirs. So if you have car problems while traveling out of town, you may be out of luck. It's best to steer clear of dealer warranties.

Be leery of unsolicited extended warranty offers that arrive by mail or e-mail. Only do business with a company you know and trust. You'll want to be especially cautious when choosing a warranty from a company over the Web.

"Be careful who you do business with," Nielsen says. "If they go out of business tomorrow, they've got your money and you've got nothing."


-- Posted: March 24, 2003




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