After hours at a car dealership, about the time you’re starting to feel numb from long negotiations, all you want to do is step into your new car and drive away.
That’s when the real hard sell begins.
The finance manager will start talking about an extended warranty. An extended warranty is actually an extended service contract that covers the cost of certain repairs and problems after the factory warranty expires.
Make a wrong move here and it could cost you hundreds, even thousands, of dollars. Extended warranties are enormous moneymakers for auto dealers, with mark-ups running to 100 percent over what you could buy the same coverage for elsewhere.
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Do you need an extended warranty?
Don’t let the dealer pressure you into a quick decision. First, you may not need an extended warranty. And even if you do, you’ll get a much better deal later by shopping around. People who buy and trade cars frequently shouldn’t buy an extended warranty. There’s no need to purchase one if you only plan to keep the car for three or four years, because repairs are covered under the car’s original warranty.
But let’s say you plan on keeping a car long after its original warranty expires. Should you purchase an extended service contract? Answering these questions might help you decide.
- Do you hate surprise expenses, especially costly auto repairs?
- Will the cost of replacing a pricey electrical part or air conditioner or transmission bust your monthly budget? Or do you have a few thousand dollars tucked away in an emergency fund for just these kinds of expenses?
- How long do you plan on keeping the car after the original warranty expires?
- Would you sleep better at night knowing that certain major repairs will be covered under an extended service contract? Or would you rather risk it and pay for repairs when and if they are needed?
Another thing to consider is your car’s reliability. On the one hand, new 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.
Let’s say you plan on keeping your car for several years and an extended service contract appeals to you. There’s still no need to buy it at the moment of your new-car purchase. You can buy an extended warranty a week, a month, even years after you purchase a new car if you want.
If you say yes…
To get a good deal on an extended service contract, you’ll have to negotiate the price. Prices for the exact same warranty vary widely from dealership to dealership, so it’s important to shop around. If you’re absolutely sure you want an extended warranty on a new car, you may want to shop for one within your first year of ownership when the prices tend to the lowest.
But keep in mind, an extended warranty starts the day you purchase it, not the day the old warranty expires. So you’ll be stuck with double warranty protection that you don’t really need for a couple of years. If you do say yes to the warranty, this Bankrate article will give you nine questions you need to ask about the contract.
Two types of warranties
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 is probably your safest bet. These contracts encompass a wide range of repairs and services. The repairs can be done at any authorized dealership and tend to be approved without a hitch. You won’t pay a penny for approved repairs unless your contract includes a deductible.
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. Shop carefully. Ask about the repair network — how many garages are authorized to do repairs and in what parts of the country? If there’s not an authorized garage in the area, will they reimburse you for repairs at the nearest facility?
Warnings on warranties
There are tons of really crummy extended warranty offers out there. Be leery of unsolicited offers that arrive by mail or e-mail. Only do business with a company you know and trust. One good source for an extended service contract is your credit union.
With an aftermarket warranty, you may have to pay for the repair upfront and then wait to be reimbursed, 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. Ask how the warranty would handle repairs when you’re out of the area. If they’re not covered, steer clear.