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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

Lease or Buy? How much car can you afford? Bankrate helps you do the numbers with our calculators
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• Main story: Auto add-ons can add more debt

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NATIONAL OVERNIGHT AVERAGES
48 month new car loan 6.58%
60 month new car loan 6.57%
48 month used car loan 6.89%



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